Trade union representatives on Friday said they will strongly oppose the proposal allowing EPFO to park part of its fund in the capital market when the issue comes up for final decision at key advisory body finance and investment committee next week.
"Investment in stock markets can be beneficial and at the same time involves risk of heavy losses also. This is a retirement fund. Who will compensate the subscribers for losses?," Indian national trade union congress president G Sanjeeva Reddy said.
Besides Reddy, who is also a member of the Employees' Provident Fund Organisation's key advisory body FIC, other trade union representatives too said that it is not a 'sensible' move to invest retirement funds in the stock markets.
The finance ministry had in August 2008 proposed that EPFO should invest up to 15 per cent of its large corpus of Rs 2.57 lakh crore (Rs 2.57 trillion) in the capital market for better returns.
The proposal, however, could not find favour with either FIC or central board of trustee, the apex decision- making body of EPFO, which is headed by labour minister.
Later, the finance ministry mooted the idea of investing 3 to 5 per cent of funds in stock index by arguing that it was less risky.
The discussion on pattern of investment notified by the finance ministry on August 14, 2008, is listed on agenda for FIC meeting on October 8 where the proposal to invest 3-5 per cent of EPFO funds in stock indices would be evaluated.
After evaluating the proposal, the FIC would make necessary recommendations to the CBT for final decision. It is a general practice that FIC recommendations are accepted by CBT.
The proposal, if approved, would result in Rs 13,000 crore (Rs 130 billion) flowing into the stock markets. The EPFO has not invested in stock markets so far.
At a recent meeting of FIC on August 18, an EPFO official favoured parking 3-5 per cent of the funds in the stock market through a detailed presentation.
The official had said that Index-based strategy for investment in equities would be most suitable for EPFO's need.
During the meeting of FIC, it was felt that alternative avenues are a must to enhance or maintain overall returns to subscribers as fixed-income products would, as in the developed economies, lessen in future.
Investment in equities provide a good hedge against inflation, unlike fixed income securities, the EPFO official had advocated in the presentation. That means equity investment is better than fixed income securities.
