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EPFO June meet to take a call on rates

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Ashish Aggarwal New Delhi
Last Updated : Feb 14 2013 | 8:59 PM IST
Organisation to decide investments in equity market.
 
The Employees Provident Fund Organisation's (EPFO) board is expected to meet in early June to take up the issue of interest rate for 2006-07, besides taking a call on investing in the equity market.
 
"We have to decide on the interest rate for 2006-07. The board will also take up the proposal to enable it to invest up to 5 per cent of its investments in equities," Vishwanathan, central provident fund commissioner said.
 
EPFO has recently gone in for high-interest deposits with a private sector bank for a small amount to benefit from the liquidity crunch facing the banks. It is exploring more such options.
 
The proposal to invest in equity has been lingering for over a year even though the board members have arrived at a consensus on the matter.
 
EPFO has investments of Rs 1,66,106.48 crore of which 32.2 per cent (Rs 53,570.08 crore) is invested in a special deposit scheme, fetching an interest of 8 per cent.
 
The same is true for 19.6 per cent of the portfolio held in the public account. The remaining 48.2 per cent is invested in government securities and public financial institutions.
 
"We have old securities which yield as much as 14 per cent," Vishwanathan said. The problem is that this component of investment has been shrinking gradually, making EPFO look towards equity and other options hike high-interest deposits with banks.
 
ICICI and IDBI, for instance, are no longer public sector financial institutions. The EPFO board is not in favour of investing in corporate bonds and deposits in private banks are possible only if they have been rated AAA by at least two agencies.
 
Of the EPFO's total corpus of Rs 1,66,106.48 crore, Rs 90,438.36 crore belongs to the provident fund, Rs 70,749.13 crore to the pension fund and the remaining Rs 4,918.99 crore is on account of the employees' deposit-linked insurance scheme.
 
EPFO has Rs 877 crore in the unclaimed deposit account but this cannot be used to fund the gap between what it earns and the interest it pays. This is because the EPFO is liable to pay this up whenever any member or heir makes a claim.
 
The special reserve fund, which is made by forfeiting part of employers' contribution when employees leave prematurely, is around Rs 57 crore as Rs 700 crore was used out of it last year to make a higher payout.

 
 

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First Published: May 27 2006 | 12:00 AM IST

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