Private PF trusts allowed to invest 15% of incremental deposits in stocks

The ministry of labour and employment has come out with a separate notification allowing private provident fund trusts or exempted establishments to invest funds in stock markets.

Private provident fund trusts, which manage their workers' PF as well as accounts have been allowed to invest up to 15 per cent of their incremental deposits in equity or equity related investments.

The ministry had, in April, allowed the central retirement fund body Employees Provident Fund Organisation (EPFO) to park a portion of its funds in stock markets.

Although private provident fund trusts are regulated by the EPFO, the ministry has issued a separate notification for private PF trusts or exempted establishments as per the practice.

There are over 3,000 such exempted firms, which manage their workers provident fund and account themselves.

The notification provides that the exempted establishment or private PF trusts can invest a minimum of 5 per cent or up to 15 per cent of their incremental accretions in equity or equity related investments.

The investments would be made in "shares of body corporates listed on Bombay Stock Exchange (BSE) or National Stock Exchange (NSE), which have market capitalisation of not less than Rs5,000 crore as on the date of investment".

These PF trusts will invest in shares of those body corporates which have derivatives with underlying trade in either of the two stock exchanges of BSE and National Stock Exchange.

PF trusts can also invest in units of mutual funds regulated by the Securities Exchange Board of India and which have minimum 65 per cent of their investment in shares of body corporates listed on BSE or NSE.

The guidelines also state that the aggregate investment in units of mutual funds shall not be in excess to 5 per cent of total portfolio of fund at a time and fresh investment in such mutual funds shall not be more than 5 per cent of the fresh accretions invested in the year.

According to new norms, they can invest in ETFs or index funds regulated by the Sebi that replicate the portfolio of either BSE Sensex or NSE 50.

The norms also provide for investing EPFO funds in the exchange traded derivatives regulated by Sebi having sole purpose of hedging.