EPF money in stock market?
Oct 12, 2010

Author: PersonalFN Content & Research Team

In order to improve the returns on the Employees Provident Fund (EPF), the Labour Ministry is planning to give a conditional nod to the long pending proposal of investing a portion of the EPF in the stock markets.

The Central Board of Trustees (CBT), the apex advisory body of the Employees Provident Fund Organisation (EPFO), has approved the Labour Ministry’s proposal to start investing 5% of the total corpus of 3 trillion provided the finance ministry guarantees a return. If the proposal works out the equity markets may see an inflow of around 15,000 crores.

Sharing his views Mr. G. Sanjeeva Reddy, All-India President of Indian National Trade Union Congress, who is also a member of the trust (CBT), said, “There was a long discussion on investing in stock market. We categorically said that if share market investment is good for employees then 5% or 10% of the money can be invested but only if government gives capital protection assurance. The share market is volatile and employees’ hard-earned money cannot be risked without proper assurance.”

An Official of the Labour Ministry cited another way in which a conclusion can be drawn on whether to invest the EPF money into the equity markets – “The finance ministry could give the guarantee for the initial five to six years. If the result is encouraging, then the labour ministry will decide the future plan. With positive returns, the amount invested in equity markets may be increased.” the official said. He (the Official) further added that the extra gains over and above the assured rate of interest may be divided between EPF holders and the Government.

We believe that though the decision on investing a portion of the corpus of EPF is strategic, the fact is that the corpus belongs to the employees. Hence the respective authorities should seek the opinion of what employees want – whether they are willing to take the risk or not?

In our opinion investors’ should be given an option whether they want to deploy their EPF money into the equity markets or not. Hence by doing so investors depending upon their risk appetite may either invest in equities or refrain from doing so.

We think that all those closer to retirement (say 4 – 5 years), may refrain from opting equity for their EPF investment, while all those who have a longer working tenure (say 15 – 20 years) may opt equity zing for their EPF investments.