Pf Funds May Go To Capital Market

The board of trustees of the employees provident fund (PF) will meet here on February 16 to discuss a proposal to allow the annual interest earnings from the special deposit schemes (SDS) to be invested in higher yielding capital market instruments.

The proposal, mooted by the provident fund commissioner to ensure higher yield for the employees, envisages scrapping of the current practice of reinvesting the annual interest earnings of around Rs 3,000 crore into the SDS. Once the proposal is approved by the trustees and gets Centres concurrence, it would result in the release of up to Rs 1,200 crore in annual incremental contributions to the corpus for investment in capital market instruments.

At a meeting on January 31, the provident fund commissioner sought freedom to invest the funds in high-yield securities at an indicative yield of 17 per cent. Referring to the employees provident fund (EPF), the largest of the three PF schemes, the commissioner argued that the present SDS yield of 11.9 per cent was insufficient and called for easier investment norms.

Besides the EPF, which was set up in 1952, there are two other PF schemes - employees deposit linked insurance scheme of 1990 and employees pension fund of 1995. The corpus of these funds (for unexempted units) as on November 30, 1996 worked out to Rs 27,483 crore, Rs 1,532 crore and Rs 341 crore, respectively.

All the three funds are governed by the mandatory investment pattern. Accordingly, the increments to the annual corpus are required to be parked at the rate of 25 per cent in Union government securities, 15 per cent in state government guaranteed or negotiable instruments, 20 per cent in special deposit schemes and 40 per cent in capital market instruments like the public sector undertaking (PSU) bonds, corporate deposits of banks and financial institutions.

Government officials said that the bulk of the corpus is parked in the SDS. This is because the annual interest (Rs 3,000 crore) on these schemes is required to be ploughed back into the corpus. The meeting also took up the finance ministrys proposal to permit investment in top rated corporate paper.

Making out a case for itself to manage the corpus at the meeting, Industrial Credit and Investment Corporation of India (ICICI) suggested equity investments for the provident fund corpus.

On its part, the Unit Trust of India (UTI) sought investment of the incremental proceeds to the corpus in its debt and equity schemes.