After prolonged exchanges between the Union finance and labour ministries on whether the Employees' Provident Fund Organisation (EPFO) should invest in equities or not, the former has finally accepted the EPFO's insistence on staying away.
EPFO was being asked to invest between zero and 15 per cent of its corpus in equity by the finance ministry, to be able to follow a better investment pattern. This would allow more flexibility for investment in private bonds, which fetch higher returns. The existing pattern restricts investment of most of its funds in government securities and public sector bonds, with just 10 per cent in private bonds.
EPFO has been pushing the case for changing to the better investment pattern, one approved by the finance ministry in 2008, but with the rider that it would not invest in equity. The finance ministry was insisting it should. The labour ministry (parent one for the body) and EPFO had initially demanded protection of capital and guaranteed returns for any investment in equity.
When the finance ministry ruled this out, EPFO revised its proposal and got approval from its Central Board of Trustees (CBT) in February this year. This one, then referred to the finance ministry, said no to equity but worded it differently. Instead of ruling out the equity clause completely, EPFO has said that between zero and 15 per cent investment in equity, it would stick with zero. "There is no minimum requirement and zero investment is also in line with the clause," is the simple explanation of Chief PF Commissioner K K Jalan.
And now, the labour ministry says the finance ministry has agreed to EPFO switching over to the investment pattern of 2008 with the zero equity clause.
This has to be notified by the labour ministry, say sources. Since there has been a change of labour minister, the entire matter has to be put before him for approval. The matter could go back to the finance ministry if this means fresh queries are raised by the ministry, sources said.
Meanwhile, EPFO remains saddled with an investment pattern which most other funds have discarded, a pattern approved by the finance ministry in 2003. "We are virtually being blackmailed into investing in certain bonds, though their returns are low," said an official. EPFO recently got CBT approval on guidelines to select private companies whose bonds they could invest in.
So far, it could invest in bonds of no more than seven approved firms. Now, they can select from more. However, until the investment pattern of 2008 is notified, their choice remains restricted to 10 per cent of the corpus.
CRISIL, in an analysis of EPFO investments, has said the latter could have earned an extra Rs 440 crore between 2008 and 2010 if it had invested in more private bonds than just the approved ones.