Increased equity exposure of PFs will not benefit all: Experts

The finance ministry's proposal to increase equity exposure of non-government provident funds and superannuation funds from 5 per cent to 10 per cent may benefit only the high income group category and subscribers of the New Pension Scheme, analysts say.

The New Pension Scheme, under the Pension Fund Regulatory and Development Authority (PFRDA), is likely to be a key beneficiary of the move. With the PFRDA Bill pending in Parliament due to opposition from the Left parties, the Centre has in consultation with states decided to adopt non-government PF norms as an interim investment pattern of the scheme. The scheme was made operational for central and state government employees in January 2004.

Commenting on the draft new investment pattern for non-government provident, superannuation and gratuity funds, which was issued by the finance ministry for public discussion on September 10, a financial analyst said: "Strategically, it seems the New Pension Scheme will benefit from any increase in direct equity exposure by non-government provident funds."

The proposed new investment norms are only enabling provisions to benefit the contributors to derive higher returns from the market. However, the 40 million subscribers of Employees Provident Fund (EPFO), set up for employees having less than Rs 6,500 basic income per month, will not benefit from the move, as the EPFO is yet to implement even the existing 5 per cent investment limit in equity due to opposition from employees' unions.

For employees having higher income, companies set up voluntary excluded PFs that also enjoy tax benefits. There is virtually no regulation of such PFs, who only commit to tax authorities to comply with investment guidelines approved by the government. "There is a need to improve regulation of non-government PFs and capacity building among their trustees for taking informed investment decisions, which require certain expertise," said Gautam Bhardwaj, director, Invest India Economic Foundation.

There is no centralised information regarding the white-collar employees under the excluded PFs, which are independently maintained by the individual companies. "Such PFs should also be regulated under the PFRDA," he added.

Besides proposing higher equity exposure, the finance ministry also aims to permit such PFs to make investment in private bank deposits and bonds of multilateral funding agencies, up to 25 per cent of the fund corpus.