More Pension Monies in Stock Markets
Government will propose a marginal hike in equity investments of Employee Provident Fund from the existing threshold of 5 percent of the pension fund’s corpus.
The government will propose a marginal hike in equity investments of the Employee Provident Fund (EPF) from the existing threshold of 5 percent of the pension fund’s corpus. Labour Minister Bandaru Dattatreya told BloombergQuint that there will be no drastic hike.
We won’t propose hiking equity investments to 10 percent or 15 percent of the EPF corpus from the existing 5 percent. We will want a gradual increase.Bandaru Dattatreya, Labour Minister
The minister also stated that the EPF’s performance and roadmap will be discussed at the Central Board of Trustees (CBT) meeting on July 8. Constitutionally, the CBT is responsible for administering the EPF corpus. The 43-member body takes decisions on the functioning of the Employee Provident Fund Organisation (EPFO) through a vote.
Headed by the labour minister as the chairman, the CBT has 10 employee representatives (labour unions), 10 employer representatives and rest are state and central government appointees.
Under existing norms which came into effect from March 2015, the finance ministry allows the EPF to invest up to 15 percent of its funds in equity and equity-related schemes. Of the 15 percent, the retirement body invested 5 percent of the corpus, amounting to Rs 6,577 crore. Dattatreya claimed that this has yielded a return of 1.68 percent till April 30, 2016. Going by that estimate, the total corpus of EPF stands at over Rs 1.3 lakh crore.
The EPF invests in equities through Exchange-Traded Funds (ETF) benchmarked to the Nifty and Sensex. Traditionally, the EPF invests this amount in low risk and assured return investments, such as government issued bonds.
Trade unions have been opposed to the idea of EPF investments in equities as they consider them to be risky. DL Sachdeva, an employee representative in the CBT told BloombergQuint in a phone interview that unions would oppose the move to hike further investments in equity as they may yield negative returns.
With greater numbers in the CBT, Dattatreya can hardball into clearing further equity participation from the EPF corpus. But he will have to win the confidence of worker unions to generate much needed positive sentiments for the government’s reforms agenda.