Trade unions to oppose investment of PF funds in stock markets

Last Updated: Friday, October 2, 2009 - 10:55

New Delhi: Trade union representatives on Friday
said they will strongly oppose the proposal allowing EPFO to
park part of its fund in the capital market when the issue
comes up for final decision at key advisory body Finance and
Investment Committee next week.

"Investment in stock markets can be beneficial and at the
same time involves risk of heavy losses also. This is a
retirement fund. Who will compensate the subscribers for
losses?" Indian National Trade Union Congress (INTUC)
President G Sanjeeva Reddy said.

Besides Reddy, who is also a member of the Employees`
Provident Fund Organisation`s key advisory body FIC, other
trade union representatives too said that it is not a
"sensible" move to invest retirement funds in the stock
markets.

The Finance Ministry had in August 2008 proposed that
EPFO should invest up to 15 percent of its large corpus of Rs
2.57 lakh crore in the capital market for better returns.

The proposal, however, could not find favour with either
FIC or Central Board of Trustee (CBT), the apex decision-
making body of EPFO, which is headed by Labour Minister.
Later, the Finance Ministry mooted the idea of investing 3 to
5 percent of funds in stock index by arguing that it was less
risky.

The discussion on pattern of investment notified by the
Finance Ministry on August 14, 2008, is listed on agenda for
FIC meeting on October 8 where the proposal to invest 3-5 percent of EPFO funds in stock indices would be evaluated.

After evaluating the proposal, the FIC would make
necessary recommendations to the CBT for final decision. It is
a general practice that FIC recommendations are accepted by
CBT.

The proposal, if approved, would result in Rs 13,000
crore flowing into the stock markets. The EPFO has not
invested in stock markets so far.

At a recent meeting of FIC on August 18, an EPFO official
favoured parking 3-5 percent of the funds in the stock market
through a detailed presentation.

The official had said that Index-based strategy for
investment in equities would be most suitable for EPFO`s
need.

During the meeting of FIC, it was felt that alternative
avenues are a must to enhance or maintain overall returns to
subscribers as fixed-income products would, as in the
developed economies, lessen in future.

Investment in equities provide a good hedge against
inflation, unlike fixed income securities, the EPFO official
had advocated in the presentation. That means equity
investment is better than fixed income securities.

Bureau Report



First Published: Friday, October 2, 2009 - 10:55

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