A UPA government-appointed committee has recommended relaxation in investment rules for insurance and pension funds. It has proposed to cut incremental investment by non-government provident funds, gratuity funds and superannuation funds in government securities and increasing their exposure to equities.
At present, insurance and pension funds have to mandatorily invest at least 50 per cent of their corpus in central government securities and other approved investments.The committee has suggested significant dilution of this rule and a cap on such investments in government securities at 40 per cent. Earlier, the fund had relied excessively on government bonds and delivered negative returns after inflation.The Employees’ Provident Fund, the largest non-government provident fund in the country, currently does not invest in equity markets.
EPF invests up to 55 per cent of incremental inflows in government securities, government-guaranteed bonds and Gilt funds.
The committee also proposed to double the cap on investments in shares, equity mutual funds and exchange traded funds to 30 per cent from the current 15 per cent.
It, however, proposed to retain the cap on investments in bonds issued by companies, banks, and financial institutions, bank fixed deposits and rupee bonds issued by multilateral agencies at 40 per cent.
Within the corporate bond category, non-government provident funds can also invest in Tier-I bonds of banks and rupee bonds issued by Infrastructure Debt Funds, the draft guidelines said. However, the total investment in Tier-I bonds should not exceed 2 per cent of the total portfolio.
