Hike in PF equity investment cap likely to sail through at EPFO's CBT meet

The proposal to raise equity investment cap of provident fund money with the Employees' Provident Fund Organisation (EPFO) to 15 percent from the current 10 percent is likely to sail through at the forthcoming meeting of EPFO's Central Board of Trustees (CBT).

Central trade union representatives who had been opposing equity investment of PF money of EPFO subscribers from the very beginning appear to have reconciled themselves to the fact that support from an overwhelming majority of non-trade union CBT members would result in the proposal being accepted.

"We have all along been opposing the move to invest retirement money in the form of PF in equities since it is a risky investment and might result in erosion of the corpus in the long run. However, Central Trade Unions have only 10 representatives in the 42-member CBT. The employers' and the state government representatives will go with the government. However, we will record our protest at the meeting," DL Sachdeva, General Secretary, All India Trade Union Congress (AITUC) told said.

The next meeting of the CBT is scheduled to be held on March 30, 2017. The proposal to hike the equity cap has not been included in the formal agenda of the meeting but is likely to be brought in through special mention. Labour Minister Bandaru Dattatreya has said that the issue will be taken up at the meeting.

He said that the government's move comes at a time when the equity markets are doing well and returns on past stock investments are good. “The markets are doing well and the returns on EPFO's equity investments look good. But what will happen after some time if the market goes down? There may be negative returns," Sachdeva said.

According to figures released by the Labour Ministry on Wednesday, EPFO had invested Rs 18,609 crore in ETFs till February 18, 2017. This included Rs 17,105 crore in Nifty 59 and Sensex-based ETFs, while another Rs 1,504 crore was invested in CPSE ETFs floated by the government. The returns on equity investments stand at above 18 percent in 2016-17.

In 2015-16, EPFO had invested Rs 6,577 crore in ETFs that fetched a return of 13.24 percent.  The returns compare well with the payout of 8.65 percent fixed by the government to PF subscribers for 2017-18.
AK Padmanabhan, President, Centre for Indian Trade Unions (CITU) said the equity cap can be raised without the matter being placed before the CBT.

"The fact is that the Finance Ministry has set a band of 5-15 percent of equity investment by EPFO. Hence, it can go up automatically without the need to bring it before the CBT. It is just a formality," said Padmanabhan, a member of CBT told Moneycontrol.  Incidentally, CBT is the highest decision-making body of EPFO.

Padmanabhan, however, said that the central trade unions remain opposed to the move. “All central trade unions including Bharatiya Majdoor Sangh (which is close to the ruling BJP at the Centre) has in the past objected to stock market exposure of PF money. You are endangering the lifetime saving for subscribers meant for old age income security," Padmanabhan said.