Expectations of an interest rate increase on PF funds suffered a major setback. In fact, the EPFO’s pension fund management body has not yet considered a proposal to increase the equity investment limit from 15 percent to 20 percent. This information was provided by Harbhajan Singh, an EPFO trustee.
There was opposition: “The proposal to increase equity investment or equity related schemes was not put forward for consideration at the 231st meeting of the Central Board of Trustees held on 29-30 July,” said Harbhajan Singh. He said the proposal was opposed by staff representatives at the EPFO’s executive meeting held earlier this week. He said that given the volatile nature of stock markets, they should be discussed in more detail before reviewing what an EPFO investment would look like.
Retracted offer: In light of this proposal, the proposal to increase investment in shares or related schemes under the revised agenda for the meeting of the Board of Trustees has been withdrawn. It has been proposed to increase the allocation of investable funds in equity-related plans to 20 per cent from the current 15 per cent.
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Let us tell you that currently, an EPFO can invest from five percent to 15 percent of investable deposits in stocks or stock related schemes. The Financial Accounts and Investments Committee (FAIC), which advises EPFO, has endorsed the proposal to revise that limit to 20 percent. The recommendation was to be considered by the EPFO’s main decision-making body but could not be done due to opposition.
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The effect on the interest rate also: If this proposal is approved, the interest rate is expected to rise. In fact, the EPFO decides the PF rate only on the basis of the return on investment. The higher the yield, the higher the interest rate.