Labour ministry proposes to raise provident funds' equity exposure to 15%

The union labour ministry is in the process of raising the investment limit of provident fund corpus in stocks to 15 per cent from the existing 10 per cent and will soon convene a meeting of the Central Board of Trustees (CBT) of Employees Provident Fund Organisations (EPFO) to secure its nod, say reports.

The ministry has been emboldened by an increase in returns from investments in exchange traded funds (ETFs).  Provident funds have so far invested around Rs17,000 crore and a decision to raise it further could be taken in the next 10-12 days, reports quoting labour minister Bandaru Dattatreya said.

Since the rate of returns from stock markets have been high, the labour ministry wants to consult trade unions, employers and state governments to increase EPFO accruals into ETFs.

CBT, chaired by the union labour minister, is the apex body of the Employees' Provident Fund Organisation (EPFO) and is represented by members from the labour ministry on behalf of the central government, EFPO, state governments, employers and trade unions.

The labour ministry, in consultation with the finance ministry had in 2014-15 proposed to allocate 5-15 per cent of the employee provident fund (EPF) for equity market investments in a phased manner, to monetise the huge funds available with PF trusts.

However, smarter gains in the stock markets are unlikely to reflect in returns to EPFO subscribers as the labour ministry acts under the directives of the finance ministry.

In fact, for the 2015-16 fiscal, the finance ministry had lowered the interest rate on EPF to 8.7 per cent from 8.8 per cent, approved by the CBT, only to retract it later on the face of stiff opposition from the unions.