Government allows private PF trusts to invest in stock market

The private provident fund trusts which manage their workers PF as well as accounts have been allowed to invest up to 15 per cent of their incremental deposits in equity or equity related investments.

The Labour Ministry in April had allowed retirement fund body EPFO to park a portion of its funds in stock markets.

The ministry now has issued a separate notification for private PF trusts or exempted establishments to allow them to invest in stock markets.

As per the practice, same investment pattern for EPFO and exempted organisations is notified separately.

The private PF trusts are regulated by the Employees' Provident Fund Organisation. There are over 3,000 such exempted firms which manage their workers provident fund and account themselves.

The notification provides that the exempted establishment or private PF trusts can invest a minimum of 5 per cent or up to 15 per cent of their fresh accretions in equity or equity related investments.

As in the case of EPFO, these trusts would also invest in "shares of body corporates listed on Bombay Stock Exchange (BSE) or National Stock Exchange (NSE) which have market capitalisation of not less than Rs 5,000 crore as on the date of investment".

These PF trusts will invest in shares of those body corporates which have derivatives with underlying, trade in either of the two stock exchanges of BSE and National Stock Exchange.

The retirement fund body can also invest in units of mutual funds regulated by the Securities Exchange Board of India and which have minimum 65 per cent of their investment in shares of body corporates listed on BSE or NSE.

The guidelines also state that the aggregate investment in units of mutual funds shall not be in excess to 5 per cent of total portfolio of fund at a time and fresh investment in such mutual funds shall not be more than 5 per cent of the fresh accretions invested in the year.

According to new norms, they can invest in ETFs or index funds regulated by the Sebi that replicate the portfolio of either BSE Sensex or NSE 50.

The norms also provide for investing EPFO funds in the exchange traded derivatives regulated by Sebi having sole purpose of hedging.

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