Close on the heels of EPFO allowing private fund managers for its corpus, the government has now widened investment avenues for non-government provident funds, superannuation funds and gratuity funds.
On Thursday, the Finance Ministry notified the changes in the investment pattern that will be effective from April 1, 2009.
According to the new investment pattern, Central government securities, state government securities and units of gilt mutual funds will be merged into a single category and up to 55 per cent of the corpus can be invested in these instruments.
It has also provided a flexible ceiling for various categories of instruments instead of fixed investment ceiling. The amendments to investment pattern have also included new categories of instruments such as rupee bonds of multilateral agencies and money market instruments.
The government has permitted non-government provident funds (PFs) and other private provident funds to invest 15 per cent of their corpus in equities on which futures and options (F&O) trades are available.
Further, trusts have been given flexibility of exceeding the investment ceiling up to 10 per cent of the limit prescribed during the year.
This means that the funds can invest 16.5 per cent of the corpus in equities or 60.5 per cent in government securities but have to unwind the position later in the year.
Trustees of these funds have been allowed freedom to exit from a rated financial instrument when their rating falls below investment grade.
At present, some private funds have the option to invest 5 per cent of the corpus in equities but most trusts have opted to stay away from it.
“EPF funds are not being included for the time being”, said Central Provident Fund Commisssioner A Viswanathan. He said that the main impact of the new guidelines is the rise of fund gurus. The guidelines will put pressure on the trustees as someone will have to take a call as to what equity to buy.
“No trustee would like to take the risk. Hence, hiring fund managers and fund gurus would become a reality and, as a result, costs would go up,” he added.
Despite several attempts by the finance ministry to get the EPFO to invest in equities to maximise returns, the organisation has not accepted the suggestion.
“This move will give one more asset class to investors (who invest in funds) for diversifying their investments. Equity investment in the long run provides better returns, compared to fixed-income investment. This matches with the objective of superannuation and PF funds to put money in long-term investment avenues,” said a senior executive at an insurance company that manages superannuation funds for large corporate houses.
The three fund managers appointed by the Pension Fund Regulatory & Development Authority (PFRDA) have also been allowed to invest up to 15 per cent in equities.
Viswanathan said there were no estimates of how much money was there with non-government provident funds, superannuation funds and gratuity funds.
