The Hindu Business Line : EPFO may float SPV for investment in equities

THE Central Board of Trustees of the Employees' Provident Fund Organisation is likely to consider floating a special purpose vehicle (SPV) through which a portion of the organisation's corpus could be invested in equities.

The move follows the recent enabling provision created by the Ministry of Finance allowing all non-Government provident funds, superannuation funds and gratuity funds to invest in equities of investment grade-rated companies.

According to Government sources, an initial corpus of Rs 500 crore may be earmarked for this purpose and returns would be reviewed every three months.

However, according to a CBT member, the EPF Act does not clearly mention whether a consent by the CBT can enable the EPFO to float a SPV and administer it.

"Nothing is mentioned in the Act on SPVs and if necessary certain changes in the Act itself may be necessary," the member said.

In January, the Finance Ministry had permitted all non-Government provident funds, superannuation funds and gratuity funds to invest up to 5 per cent of their total portfolios in shares of companies that have an investment grade debt rating from at least two credit rating agencies.

The new guidelines came into force from the beginning of this month.

According to the EPFO's estimates, 93 per cent of the total 3.94 crore members have balances below Rs 50,000 and of this, 85.39 per cent of the members have balances below Rs 20,000. The average balance in this category is Rs 2,928. The average balance in the category between Rs 20,000 and Rs 50,000 is Rs 41,719 per member.

In aggregate, for 93 per cent of the membership, whose net balance is less than Rs 50,000, the average balance is Rs 6,203. For the remaining 7 per cent of the membership in the bracket of Rs 50,000 to Rs 50 lakh and above, the average balance per member is Rs 88,729.

The falling rate of interest payable on these deposits had been a concern for the past three years. Under pressure from trade unions, the Government has announced a 9.5 per cent interest for fiscal 2004-05. However, following the drop in interest rate of Special Deposit Scheme to 8 per cent, EPFO's interest earnings are lower by around Rs 900 crore compared to the interest payable by the organisation for 2004-05. To explore other avenues of higher earnings, investment in equities is being contemplated, sources said.

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