Govt favours different norms for PF investments in stocks

Govt favours different norms for PF investments in stocks

The Finance Ministry is in favour of two contrasting norms when it comes to investing part of corpus with Employees Provident Fund (EPF) and Government Provident Fund (GPF) in stock markets.

While it has ruled out investing any amount from Rs 83,000 crore corpus with GPF in the stock markets, the ministry is pitching for parking a part of over Rs 5,00,000 crore fund managed by EPF in the equities markets.

GPF maintains the pension fund of government employees, while Employees Provident Fund Organisation (EPFO) manages retirement fund of private and public sector enterprises.

Last week, Minister of State for Finance Namo Narain Meena said no portion of the estimated Rs 83,363 crore corpus with GPF will be invested in stock markets.

In a written reply to a question in the Lok Sabha whether the government proposed to invest a part of the GFP, Meena said: "No."

"The accumulations in the GPF is kept in the Public Accounts of India. Hence, there is no compromise on the safety of the GPF accumulation," the Minister said, adding the total corpus as on 31^st March 2009 was Rs 83,363 crore.

Meena said returns on accumulations in GPF are fixed to average second market yields on government securities, which are currently at 8 percent.

This approach is in stark contrast of the Finance Ministry's own views, which favour investing part of EPFO managed corpus in the stock markets.

In an investment pattern issued in August 2008, Finance Ministry has asked the EPFO to invest up to 15 percent of its huge corpus in equities.

The EPFO maintains a huge corpus of over Rs 3,00,000 crore, and all recognised PFs managed by it have accumulated funds of another Rs 2,00,000 crore.

In fact, the ministry's views on this subject have evoked sharp criticism from the Labour Ministry.

The idea of investing part of the retirement fund in equities has been turned down by EPFO's advisory body Finance and Investment Committee (FIC) as well as its trustees headed by Labour Minister repeatedly in the past years.

In a letter two months ago to Finance Secretary Ashok Chawla, Labour Secretary P C Chaturvedi conveyed EPFO trustees decision that a part of its EPF corpus can be invested in equities provided government gives guarantee of returns on capital, as well as the capital.

"...if the investment in the capital market is so good, then there should be no problem for the government to provide a guarantee regarding the safety of the workers' capital funds and a reasonable rate of return on the capital," the Labour Secretary's letter said.

The Central Board of Trustees (CBT) -- the highest policy making body of the EPFO that is headed by the Labour Minister -- had expressed reservations on investing retirement fund in stock markets at its meeting on 15^th September.

Even the Finance Ministry's proposal of investing 3-5 percent of EPFO's funds in equity indices was turned down by FIC and the CBT.