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Wednesday, Mar 16, 2005

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EPFO panel opposes investment in equities

Ambarish Mukherjee

New Delhi , March 15

THE Finance and Investment Committee of the Central Board of Trustees (CBT) of the Employees' Provident Fund Organisation has taken a view against investment of EPFO funds in equities.

The issue had come up before the committee as a fallout of the Finance Ministry's recent decision to allow investment of up to 5 per cent of the provident fund's corpus in equities.

The committee's recommendations would now be placed at a CBT meeting next week. The CBT, in turn, would send its recommendations to the Ministry of Labour.

The Finance Committee also decided not to forward any specific recommendations on the interest rate on PF deposits for 2004-05 in view of the announcement made by the Finance Minister, Mr P. Chidambaram, that the Government would pay 9.5 per cent.

It also decided to appoint an independent private chartered accountant firm to look into the details of the interest suspense account of the EPFO.

In the last week of January, the Government issued a revised guideline for investments by non-government provident funds, superannuation funds and gratuity funds allowing them to invest up to 5 per cent of their total portfolio in shares of companies that have an investment grade debt rating from at least two credit rating agencies. The guidelines would become effective from April. Five per cent of the EPFO's total corpus of around Rs 1,35,000 crore would have pumped in approximately Rs 6,500 crore into the market.

Committee member and Secretary of the Centre for Indian Trade Unions (CITU), Mr W.R. Varada Rajan, told Business Line after the meeting that "we decided not to exercise the option of investing in equities and stay with the earlier CBT decision of not investing in equities."

He also said the committee has decided to appoint a CA firm to go into the details of the interest suspense account. "The interest suspense account needs to be tallied because every year there are confusions. This CA firm would be doing that and identify the funds in the various categories," he said.

The interest suspense account has three components. First, interest received by the EPFO during the year that is to be credited to the subscribers' account. Second, interest received on unclaimed accounts and would be credited to subscriber's account only when claims come, and third, surplus of interest earnings over interest liability.

The other committee member representing the Bhartiya Mazdoor Sangh, Mr Alampalli Venkataram, told Business Line that "we are totally opposed to investment in equities. The EPFO funds are workers' money and need to be safeguarded but investment in equities involves high risk."

Mr Venkataram also said the interest suspense account would be examined by a CA firm that would be appointed by the Chief Commissioner of Provident Fund (CCFC). "Otherwise, by our calculations, the EPFO can actually afford to pay 12 per cent interest for the current fiscal," he said.

The third labour union having representation in the committee is the Indian National Trade Union Congress, which did not attend the meeting.

The Finance and Investment Committee includes three representatives from the labour unions, three from the employers, two members from the Ministry of Labour and the CCFC.

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