EPFO consultant suggests putting money in Pvt debt instruments

Reeling under a severe resource crunch, the Employees Provident Fund Organisation is contemplating putting money in private debt instruments to generate revenue and setting up an investment department as recommended by a consultant.

New Delhi, Aug 16: Reeling under a severe resource
crunch, the Employees Provident Fund Organisation is
contemplating putting money in private debt instruments to
generate revenue and setting up an investment department as
recommended by a consultant.

The recommendations by mercer human resource consulting
also include removal of existing limits prescribed in case of
public sector undertaking/public sector financial institutions
securities and removal of mandatory requirement in state
government securities to increase flexibility.

Sources in the labour ministry said the consultant has
also suggested increasing the maximum maturity for deposits
with public sector banks from one year to three years and
permitting active management of portfolio through trading.

It also recommended appointment of two or more external
portfolio managers in the event of active management of
portfolio.

They said the total investment made by the EPFO in
2005-06 was Rs 20,648.58 crore, while the total return
earned stood at Rs 12,936.16 crore.

The sources also said Rs 877.76 crore was lying unclaimed
in the EPFO as on March 31, 2005.

The total corpus of the EPFO as on March 31 this year was
Rs 1,66,106.48 crore.

After paying 8.5 per cent interest to nearly four crore
subscribers during the current year, EPFO will be left with a
deficit of Rs 340 crore.

The Finance Ministry had prescribed the revised
investment pattern for EPFO to allow up to 5 per cent
portfolio investments in equities and 10 per cent in private
sector bonds and/or equity-linked mutual funds.

However, EPFO`s finance committee had turned down the
ministry`s proposal of investing EPF funds in equities.

Instead, they had proposed that EPF money be invested in
national savings schemes and post office term deposits.

The Finance Ministry, however, rejected EPFO`s views. It
pointed out that government was proposing to close down the
SDS scheme as investments here had fallen from 85 per cent to
less than 60 per cent. In 1975, the interest rate paid under
SDS scheme was 12 per cent and has now dropped to less than 8
per cent.

However, trade union members of EPFO have been opposing
Finance Ministry`s proposal all along. They contend that
government cannot afford to gamble with the hard earned
savings of employees by investing their money in high risk
areas.

They have been insisting that government should raise
interest paid for investment in its special deposit scheme,
where most of the PF money is parked.

Bureau Report

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