Call To Restrict Pf Investments To Fi, Public Sector Debt

The Board of Trustees of the Employees Provident Fund (EPF) has recommended against permitting funds from the incremental provident fund corpus to be invested in private corporate debt. The board has suggested that investments from the corpus should be allowed only in `AAA-plus rated debt of financial institutions (FI) and public sector units (PSU).

The recommendations seem to have effectively dashed any prospect of PF money being invested in high-yield capital market instruments, as had been recommended by the PF commissioner on January 31. Addressing a meeting of representatives of financial institutions and the labour ministry as well as trade union leaders, the commissioner had pointed out that these securities would yield around 17 per cent interest against the current yield of 11.9 per cent from the special deposit scheme. However, the board has opined that pension and provident funds should be invested prudently and in extremely safe securities.

 

If the Centre clears the boards recommendations, it would pave the way for Rs 1,200 crore in annual incremental contributions to the corpus to be invested in FI and PSU instruments. Currently, the bulk of the EPF corpus approximately Rs 3,000 crore is parked in the special deposit scheme, with Rs 360 crore invested in Central government securities, Rs 300 crore in state government securities and Rs 400 crore in capital market instruments like banks Certificates of Deposits and bonds of financial institutions.

At the boards meeting last week, the Unit Trust of India, the Industrial Development Bank of India, the Industrial Credit and Investment Corporation of India, the Industrial Reconstruction Bank of India and the National Housing Bank all made detailed presentations about themselves. All these organisations are expected to bid for the funds that will be released following acceptance of the boards recommendations.

The board has yet to take up the issue of merging the Family Pension Scheme, 1971 and the Employees Deposit-Linked Insurance Scheme, 1976 with the main corpus of the Employees Pension Scheme, 1995. However, it has recommended the institution of a review of the investment agencies performance, to be conducted either on a quarterly basis or every second month. In addition, the agencies should also be made to submit a monthly report indicating the deployment of funds in various instruments, the yields from each and the overall weighted average yield, the board has recommended.