New Delhi: To facilitate flow of provident fund money into equity markets, Labour Ministry has proposed to start with investment of 1 per cent of Employees' Provident Fund Organisation's corpus into equity and related schemes and then gradually take it to 5 per cent.
In another big change, the labour ministry may seek the Cabinet's nod for a proposed amendment to Employees' Provident Funds Act which will allow an employee a one-time option for joining the New Pension Scheme (NPS) of the Pension Fund Regulatory and Development Authority in lieu of employee provident fund scheme.
The new investment pattern in which the retirement fund body can invest in stock markets, is likely to be notified soon by the Labour Ministry, a senior government official said on Tuesday. Finance Minister Arun Jaitley in the Budget proposed a new investment pattern under which the retirement fund body would invest a minimum of 5 per cent of its investable funds into equity and equity-related schemes.
"We will notify the investment pattern soon. Over a period of time, it makes sense to invest in equity. Investment in a basket of portfolio is safe. All over the world, experience is that equity investment has given the highest returns, the Labour Ministry official said, after a meeting of Central Board of Trustees (CBT), the decision-making body of EPFO.
"What we are thinking is that we will start with 1 per cent and will go up to 5 per cent. We will review and gradually increase the investment limit," the official said.
Trade unions have opposed any move to invest EPFO fund in capital market, CITU president A K Padmanabhan said.Labour Minister Bandaru Dattatreya said the ministry will discuss with appropriate authorities to dispel the apprehensions expressed by stakeholders.
EPFO Central Provident Fund Commissioner KK Jalan said the central government can decide the pattern of investment of fund. "The pattern of investment is to be determined by the government. We are not putting 100 per cent of the money in equity. At the first, 1 per cent and then review, then 2 per cent and review and try to reach 5 per cent. We are going very very gradually. The feeling is that the economy will go better. So we can consider our investment in ETF (exchange traded funds)," Mr Jalan said. (ETF is a basket of stocks that reflects the composition of an index, like the BSE Sensex or NSE Nifty. The value of ETFs is based on the net asset value of the underlying stocks that it represents.)
The labour minister said the Employees' Provident Funds (EPF) and Miscellaneous Provisions Act, 1952 will go to the Cabinet soon and then to Parliament for amendments. "We have informed the Parliamentary Affairs Minister already about this as it has to be introduced in Parliament session in April."
In the proposed amendment, an employee will have a one-time option for joining the New Pension Scheme (NPS) of the Pension Fund Regulatory and Development Authority in lieu of EPF scheme.
Also, from next fiscal year 2015-16, all accounts under EPFO will be updated online.
The trade unions have unanimously opposed the proposal of shifting to NPS from EPF under the Amendment to EPF & MP Act.
"We have objected to the idea of shifting from EPF to NPS. NPS is only a saving scheme, but EPF is a social security scheme," said Padmanabhan.
However, the trade unions have welcomed the proposal that mandates special provision for small enterprises including provision of provident fund in organisations with 10 or more members. Earlier, the limit was up to 40 employees.
Also under the proposed amendments, such small-scale industries will have the provision to reduce employees' contribution to 9 per cent of the basic towards their PF account, which is otherwise 12 per cent.
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