New Delhi: The government has allowed all non-government provident funds, superannuation funds and gratuity funds to invest in equity markets.

As per the revised guidelines released yesterday on the investment pattern to be followed, these funds can now invest up to five per cent of their total portfolio in shares of companies that have an investment grade debt rating from at least two credit rating agencies.

The new guidelines would come into effect from the beginning of the 2005-06 financial year. This would mean that the Central Board of Trustees (CBT) of the Employees Provident Fund Organisation (EPFO), which is the largest PF fund in the country managing close to around Rs1 lakh crore of workers'' money can now take a decision to invest in corporate equities.

These funds have also been permitted to invest in Term Deposit Receipts (TDRs) of the public sector banks up to three years as against the existing limit of less than a year.

The new guidelines further allows these funds to invest in the bonds of the public financial institutions and public sector companies if these are rated as investment grade by two credit rating agencies.

It has also been decided to allow investment in ''collateral borrowing and lending obligations'' (CBLO) issued by Clearing Corporation of India Limited and approved by the Reserve Bank of India. It further allows an investment of up to 10 per cent in the debt instruments bearing investment grade rating and or equity-linked scheme of mutual funds regulated by SEBI. The maximum exposure of any fund to investment in any gilt fund has been restricted to 5 per cent of its portfolio at any point of time.