Government to raise EPFO’s equity investment limit to 15%

Government plans to raise equity investment limit for the central provident fund organisation to 15 per cent from the current five per cent, helping to channel nearly Rs1,00,000 crore of the Rs6,60,000 crore funds available with the Employees Provident Fund Organisation (EPFO).

Stating this at a business conference on Thursday, minister of state for finance Jayant Sinha said greater investment by pension funds, which are typically long-term investors, would help stabilise domestic equity markets.

The EPFO manages subscriptions of around Rs6,60,000 crore ($100 billion) that are currently invested mostly in government securities bearing low fixed rate interest.

Last week, the Pension Fund Regulatory and Development Authority (PFRDA), had proposed raising equity investment limit for state pension funds to 50 per cent of their funds under management from 15 per cent at present.

Finance minister Arun Jaitley, who wants pension and insurance funds to invest more in equities and infrastructure, is likely to take a decision soon, a ministry official said.

PFRDA's investments have returned more than 10 per cent a year since it was set up in 2004.

That beats the 8.5 per cent earned by EPFO, which invests mainly in government bonds, but barely beat inflation over the same period. This could be one big encouragement for PFs to invest in equities.

Market regulator securities and exchange Board of India (sebi), meanwhile, is pitching for more equity investments by pension funds.