EMPLOYEES PROVIDENT FUND ORGANIZATION (EPFO) decides to stick to debt, won’t invest in equity

EMPLOYEES PROVIDENT FUND ORGANIZATION (EPFO) decides to stick to debt, won’t invest in equity

The provident fund deducted from one’s salary every month can give higher returns if fund managers invested the corpus in equity, many employees would argue.

But the Central Board of Trustees of the Employees Provident Fund Organization (EPFO) finds the capital markets too risky to invest in.

“We have decided not to invest in capital markets,” Samirendra Chatterjee, the central provident fund commissioner, said at a seminar in Mumbai.

The EPFO will continue to invest in state development loans, bonds of AAA-rated companies and PSUs, he said.

Chatterjee emphasized that taking risks for higher returns was not a viable option for the EPFO.

“We get around 20,000 settlement applications every day… For us return of capital is more important than return on capital,” he said.

“If they (the finance ministry, which has been seeking that the EPFO invest as much as 15% of its funds in the stock market) want us to invest, please give us a guarantee for the same, we will invest,” he added.

Recently, the payout rate on provident fund was revised to 9.5% for the current financial year, up from 8.5% in the last five years.

“None of the recognized provident funds has approached us so far with a complaint that they cannot manage 9.5% rate of return for this fiscal,” said Chatterjee.

In fact, a survey has found that more than 300 exempted funds have enough surplus, which can be used to declare extra dividend this year, he said. “However, it cannot be used to make good any bad investment by the fund manager.”

Chatterjee clarified that the entire 9.5% return on provident fund will be tax-free. “We had a talk with the ministry and will get the notification soon,” he said.

But this increased rate of return is only applicable for the current financial year. Next year, unless a new interest rate is announced, the default interest rate will be 8.5%.

There are two types of provident funds exempted funds, which are managed in-house and un-exempted, which are managed by the EPFO. Funds under the management of the EPFO have reached Rs3.25 lakh crore currently from Rs3 lakh crore in March, 2010.

Source: Daily News & Analysis

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