The government has asked the Employees Provident Fund Organisation (EPFO) to begin parking three to five per cent of its subscribers' retirement funds in stocks for better returns -- a move that would also increase flow of funds to capital markets by up to Rs 13,000 crore (Rs 130 billion).
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The suggestion was made by Finance Ministry Joint Secretary K P Krishnan at a recent meeting of the Central Board of Trustees, the apex decision making body of the EPFO.
Krishnan told the Trustees that EPFO could begin by parking three to five per cent of its corpus in stocks, if the CBT members had reservations about investing in equities.
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He further said that long-term investments in stock indices would generate healthy returns to the EPFO with negligible risk.
Agreeing with Krishnan, the then Labour Secretary Sudha Pillai had asked the Finance Ministry to prepare a detailed note on investment in stocks to help the EPFO Trustees to take a final view.
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The EPFO, which manages provident fund accounts of about 4.5 crore (45 million) subscribers, has a corpus of Rs 2.57 lakh crore.
The Finance Ministry's note on investment would be considered by the Finance and Investment Committee (FIC), an advisory body of the EPFO, at its meeting on August 18.
The recommendations of the Committee are usually accepted by the CBT, which is headed by the Labour Minister and has the authority to take policy decisions.
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Earlier, the FIC had turned down the Finance Ministry's proposal of parking up to 15 per cent of its funds in stocks. The FIC's opposition was in view of the volatility witnessed in the stock markets.
The Finance Ministry in August last year had suggested a new investment pattern to the EPFO under which it could park up to 15 per cent of its funds in companies listed on Bombay Stock Exchange and National Stock Exchange and also equity linked schemes of Sebi-regulated Mutual Funds.
The Finance Ministry came out with the new investment pattern in August, 2008 after EPFO allowed private players HSBC, Reliance Capital and ICICI Prudential to manage the incremental funds of EPFO in July last year. The EPFO had also selected the country's largest public sector bank State Bank of India for the purpose.
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Considering the volatile nature of stock markets, EPFO has not invested in stock markets so far.
