Financial Daily from THE HINDU group of publications
Wednesday, Sep 08, 2004
Markets - Stock Markets
Ministry proposes EPF investment in equities
New Delhi , Sept. 7
THE current investment pattern of the Employees Provident Fund Organisation (EPFO) may be in for some changes. The Ministry of Labour is planning to place a proposal before the Central Board of Trustees (CBT) of the EPFO to consider whether a small portion of the EPF funds could be invested in the stock market.
According to the proposal to be placed before the CBT, in order to ensure higher returns to EPF subscribers in the long run, the trustees will have to consider whether five per cent of the funds could be invested in equity-linked schemes.
Sources said that the existing investment guidelines of the EPFO force the organisation to be fully dependent on low but guaranteed returns through various Government instruments and there is no flexibility.
According to the new proposal, the trustees will have to consider whether it would be prudent to invest five per cent of the funds in stock market instruments that bear higher risks along with the possibility of a higher return.
Sources said that an internal study has shown that returns on investments in equities are the highest in the long run.
The proposal also includes a suggestion that only those subscribers who will continue their EPF accounts for more than 10 years will get the benefit of such investments.
This is because a large number of EPF subscribers are found to withdraw their entire deposits and close their accounts within a few years for various reasons and those who continue beyond 10 years are less than 50 per cent of the total number.
However, sources pointed out that the entire concept is at a nascent stage and the Ministry is collecting data and would place a comprehensive proposal before the CBT though no time frame has yet been finalised.
If the proposal is approved by the CBT, it will then be placed before the Finance Ministry for a final clearance, sources said.
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