The Employees Provident Fund Organisation's (EPFO) key advisory body, Finance and Investment Committee (FIC), will meet here tomorrow to firm up a view on investing 3 to 5 per cent of its corpus in equity that could result in Rs 13,000 crore flowing into the capital market.
"The discussion on parking a 3-5 per cent of retirement fund of Rs 2.57 lakh crore in the stock market is listed on the agenda of the FIC's meeting scheduled on October 8," a Labour Ministry source said.
"Since the issue has been pending for long and FIC is through with the detailed presentation, it is likely to take a final view on investing in stock indices," the source said.
After evaluating the proposal, the FIC would make necessary recommendations to the EPFO's apex body, the Central Board of Trustees (CBT), for the final decision. It is a general practice that FIC recommendations are accepted by the CBT.
The EPFO has not invested in stock markets so far. At a recent meeting of the FIC on August 18, an EPFO official suggested parking 3-5 per cent of the funds in the stock market through a detailed presentation and said: "Index-based strategy for investment in equities would be most suitable for EPFO's need."
During the meeting, it was felt that alternative avenues are a must to enhance or maintain overall returns to subscribers, as fixed-income products would lessen in future.
Investment in equities provide a good hedge against inflation, unlike fixed income securities, the EPFO official had said in the presentation. That means equities investment is better than fixed income securities.
This July, the CBT had dumped the proposal of parking up to 15 per cent of its funds in equities under a new investment pattern suggested by the finance ministry in August last year.
K P Krishnan, Joint Secretary in the finance ministry, then told the trustees that EPFO could begin by parking 3-5 per cent of corpus in stock index, if the CBT members had reservations about investing in equities.
Krishnan had also said long-term investments in the stock index would generate healthy returns to the EPFO with negligible risk.
Earlier in March this year, the FIC had turned down the Finance Ministry's proposal of parking up to 15 per cent EPFO funds in companies listed on the Bombay Stock Exchange and the National Stock Exchange, and also the equity-linked schemes of Sebi-regulated Mutual Funds.
