A restrain imposed upon, often hinders us from acting on own free will. However, certain restrictions enforced upon us are in our own interest. In the walk of life, one may have experienced restriction imposed upon right from parents to teachers; but at most times they are in our own long-term good.
In the investment arena too, a lot of restrictions are imposed by the regulators in order to protect interests’ of majority of investors. No doubt, being conservative pays in the long-term, but too much restriction results in reduced returns which could have otherwise been accrued to the investors.
In a similar case, reeling under the pressure of restrictions the Employees Provident Fund Organisation (EPFO) is seeking greater flexibility to park its funds in private sector debt instruments as it has already exhausted the investment limits.
Under the existing eligibility criteria, EPFO can park funds in only seven entities which include three banks (HDFC Bank, ICICI Bank and Axis Bank) and four Non-banking Finance Companies (NBFCs) (HDFC Ltd, IDFC Ltd, LIC Housing Finance and IL&FS Ltd). However, EPFO has already exhausted the investment limit in NBFCs and can only park funds in the three private sector banks which provide lower returns than their private sector companies. Citing this anomaly the EPFO’s apex body the Central Board of Trustees (CBT) has given its nod to EPFO to park funds in certificate of deposits (CDs) issued by public sector banks as they provide higher returns. Moreover, the CBT has also approved investment in fixed deposits by EPFO for upto five years as against the current ceiling of one year. But before implementing any of the CBT approved proposals, the Government clearance is required.
We are of the view that, the flexibility of investments as demanded by the EPFO could help it to earn a better rate of return on its investments which would ultimately lead to higher returns for the subscribers of EPF. However, in the quest of earning higher returns, the credit quality of the instruments should not be ignored. After all, it is the hard earned money of the EPF subscribers which they expect to fetch them a respectable corpus at the time of their retirement.
Apart from this, the EPFO should function in an orderly manner and update the accounts of its large number of subscribers on a real time basis. Displaying year old records does not serve the purpose when a subscriber logs into his or her EPF account.