More Pension Monies in Stock Markets
The government will propose a marginal hike in equity investments of the EmployeeProvident Fund (EPF) from the existing threshold of 5 percent ofthe pension fund's corpus. Labour Minister Bandaru Dattatreya toldBloombergQuint 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 roadmapwill be discussed at the Central Board of Trustees (CBT) meeting on July8. Constitutionally, the CBT is responsible for administering the EPFcorpus. The 43-member body takes decisions on the functioning of the EmployeeProvident Fund Organisation (EPFO) through a vote.
Headed by the labour minister as the chairman, the CBT has10 employee representatives (labour unions), 10 employer representatives andrest 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.
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