The Finance Ministry has been insisting that a part of the Employees' Provident Fund should be invested in equities to earn better returns but the move has been resisted by the Labour Ministry apprehending high risk attached with such investments.
"... if the investment in the capital market is so good, then there should be no problem for the government to provide a guarantee regarding the safety of the workers' capital funds and a reasonable rate of return on the capital," Labour Secretary P C Chaturvedi said in a letter to Finance Secretary Ashok Chawla.
The Central Board of Trustees (CBT), the highest policy making body of the Employees Provident Fund Orgnisation(EPFO), which is headed by Labour Minister, had expressed its reservation on investing retirement fund in stock markets at its meeting on September 15 last.
The Finance Ministry had wanted the Labour Ministry to bypass the CBT and make enabling provisions to allow provident funds to invest part of their corpus in stock market.
Earlier in July, in a letter to Chaturvedi, Chawla referred to the changes by EPF schemes earlier without any discussion in the Central Board of Trustees (CBT) and said, "it (Labour Ministry) can take a similar view on the issue of investment pattern."
However, the Labour Ministry forwarded the letter to EPFO to take a view on the matter and the trustee decided not to invest in stock market last month.
The Finance Ministry wants the Labour Ministry to follow investment pattern notified by it in August, 2008, which provides for investing up to 15 per cent of the corpus in stock markets.
Whereas the EPFO commands a corpus of Rs 3 lakh crore, other provident funds, which follow the Fund's investment pattern, have another Rs 2 lakh crore.
Chaturvedi said, "The CBT is not convinced about the welfare of the employees ... through the new investment pattern, which involves investment of at least 5 per cent of the accretion each year, in the capital market whether through money market funds, mutual funds or the stock market."
Pointing out that EPFO trustees' decision is supreme as they are custodian of the poor workers money, Chaturvedi said, "CBT have been given a responsibility of ensuring the safety of the capital of workers and also ensure reasonable returns. Therefore the final decision with regard to investment of EPF corpus lies with them."