Image via WikipediaIn a letter last month to labour secretary Prabhat Chaturvedi, the top bureaucrat in the finance ministry insisted that it is “imperative” that the EPFO adopt the investment pattern determined by finance ministry. Ashok Chawla even suggested that the labour ministry should use its powers to circumvent the board of trustees of EPFO, a provider of retirement income for nearly 5 crore employees, if change is not forthcoming.
EPFO manages some 3 lakh crore of its own and also has under its watch an additional nearly 2 lakh crore from thousands of privately-run provident fund trusts. It has an all-debt portfolio and bulk of the money is invested in government securities or public sector bonds. It guaranteed a payout of 8.5% in 2009-10 .
Mr Chawla contrasted the lethargic performance of the Employees Provident Fund, which returned 8.5% in the last two fiscal years, with the nearly 15% return in 2008-09 for central government employees under the New Pension System. “In the interest of employees’ welfare, a small beginning could be made by investing a small part of the incremental accretions in stock markets based on the risk-return appetite of the trustees,” he wrote.
Mr Chawla has said that a liberal investment pattern should apply to money managed by EPFO as well as funds in privately-run provident fund trusts overseen by it. Under finance ministry rules unveiled in 2008, the EPFO can invest up to 15% of fresh accretions in the stock market, but this is not mandatory.
THE BACKGROUND
In 2005, finmin allowed PFs to invest 5% of fresh accretions into equities. It was raised to 15% in 2008, but it was made optional Labour ministry-run EPFO rejected the 2005 investment pattern. EPFO board of trustees has been debating the 2008 pattern, but there’s no decision in sight ‘Excluded PFs’ followed finmin’s investment diktat till recently.
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