In a major policy shift to ensure security after workers retirement, the central board of trustees (CBT) of Employees Provident Fund Organisation (EPFO) on Tuesday raised the upper limit for investment in government bonds to 100% from the present 55% and rejected a proposal to allow putting employees' money into relatively risky equities or exchange traded funds.
The CBT also approved the interest rate on PF for 20014-15 at last year's level of 8.75% as against the proposal of cutting it to 8.7%. By offering 8.75% interest, EPFO will be able to book a surplus of about R100 crore. The surplus would have been R77 crore if the rate was raised to 8.8% while the surplus could have been higher at R242 crore if EPFO offered 8.7%.
Labour minister Narendra Singh Tomar said the CBT will recommend 8.75% interest on PF to the finance ministry, which will be 0.05 percentage point more than general provident fund (GPF) rate.
Elaborating on CBT's decisions, Tomar said the EPFO has been allowed to invest up to 100% in government bonds as against the earlier limit of 55%. EPFO will also be able to borrow short term funds under collateralized borrowing and lending obligation (CBLO) and repo windows.
Though the proposal of allowing the retirement fund to invest 15% each in equities and exchange traded funds came up for discussion at the CBT meeting, it was rejected mainly after opposition from trade unions members.
The investment committee of the EPFO has been building a case for allowing EPFO to invest in equities so as to earn a higher return. A higher exposure in government bonds makes the investment secured but potentially caps the overall return of EPFO over time. In contrast, some exposure in equity and exchange traded funds could have helped the EPFO ensure a higher return over a long term.
The proposed PF rate at 8.75% for 2014-15 is slightly higher than the public provident fund rate of 8.7% but fails to meet trade unions expectations of 9-9.5%. The EPFO, which has an investment corpus of R6.3 lakh crore, invested R86,077 crore in bonds during 2012-13.