A five member panel has recently recommended the broadening of investment options available to EPFO. As per the national pension system which comes under the purview of Finance Ministry, gives the choice to invest up to 75% in stocks to the provident fund subscribers.
It is important to note that EPFO has more than 50 million subscribers and like NPS the PF subscribers might also get the choice of higher allocation. The availability of such an option will prove to be beneficial for all the concerned stakeholders. The various trade unions, employers and central as well as the state governments, each have their stake in any major policy change relating to the matter which will be deliberated upon in the next meetings of CBT, the highest decision body of EPFO.
EPFO has been investing in Exchange Traded Funds which is an equity linked scheme since 2014. However, the investment limit is capped at 15% as of now. The deliberations are to increase the lomit.as higher equity exposure might lift the returns for the subscribers.
The other benefit is that the risk averse subscribers will also have the opportunity to opt for the lower equity. Also, the younger subscribers who might take more risk can be the game changers and step up the share allocation. It would strengthen the condition of stock market which is quite hampered as of now.
There might not be much difficulty in implementing the scheme as the unit system for equity investment has already been approved by the authorities. Even the software development for the purpose is on progress. However, the finance ministry would have to amend the investment pattern to incorporate the changes.
The accounting policy change is important to protect the market from trade wars. It is apt to say that this change is a win-win situation for all the concerned bodies.