The ministry had suggested last year that up to 15% of the EPFO’s Rs 3 lakh crore corpus be invested in equities. It was rejected by the FIC in March last year. In keeping with the FIC’s recommendations, the Central Board of Trustees (CBT) of the EPFO had also rejected the suggestion later. Wednesday’s meeting is seen as a preamble to the September 4 conclave of the CBT.
“At present, the finance ministry can recommend an investment pat-tern for the EPFO’s funds, but the final decision lies with the CBT, which is the apex decision making body for the organisation,” a government official said.
However, analysts say in the long run this could change. The introduction of multiple professional fund managers and increasing pressure on them to ensure better returns for over 4.71 crore EPFO subscribers, they contend, is likely to pave the way for hiking investment in equities.
The steady decline in payout over the years and increasing pressures from subscribers to hike interest rate may also push EPFO to increase investment in equities. Despite a demand for 9.5-10.5% interest payout for 2010-11 by employees and trade union representatives, the EPFO has maintained 8.5% returns to subscribers since 2005-06.
The interest was 9.5% for three consecutive financial years between 2002 and 2005 while the EPFO provided a return of 11.25% for 2001-02. Its highest rate of return was 12% for more than a decade between 1989-90 and 1999-2000. That was significant progress compared to when the EPFO started operations. In 1953-54, it gave subscribers a return of just 3%.
In its February meeting, the FIC recommended 8.5% interest payout to subscribers for this year too. The committee had said that maintain-ing an 8.5% interest rate would leave a surplus of Rs 15.26 crore (Rs 153 million). It had also indicated that increasing the rate to 8.75 per cent for the next fiscal would result in a huge deficit of Rs 426.53 crore (Rs 4.27 billion).
SOURCE;ET
