The finance ministry has allowed retirement fund body Employees' Provident Fund Organisation (EPFO) to become a member of a stock exchange although its trustees oppose parking even a part of its over Rs5 lakh crore corpus in equities.
This means Rs 90,000 crore of the EPFO's corpus could find its way to equity markets. Currently, the EPFO doesn't invest in equity and equity-related instruments.
The department of economic affairs has issued a notification under the Securities Contracts (Regulation) Rules Act 1957, permitting the EPFO to become a member of a recognised stock exchange, according to a release.
Market regulator Securities and Exchange Board of India (Sebi) had suggested that the government facilitate the flow of EPFO funds to equity-linked mutual funds to boost the market. The main recognised exchanges in the country are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
The finance ministry has been pitching for EPFO funds to be invested in the equity markets to maximise their yields. However, following strong opposition from unions in view of the volatile nature of stocks, the EPFO did not opt for equity investment.
The finance ministry had allowed the EPFO to invest up to 5% of its funds in equity in 2005 and enhanced the limit to 15% in 2008. A recent notification by the labour ministry allows the EPFO to invest up to 5% of its funds in money market instruments, including units of mutual funds and equity-linked schemes regulated by the Sebi.
The EPFO has more than 5 crore subscribers across the country. It provided interest of 8.5% on PF deposits in 2012-13. The EPFO trustees have decided to pay interest of 8.75% in this financial year.
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