New Delhi: To help channelise household savings into capital markets, SEBI wants government to allow a part of money lying in employee pension funds of young and high-income individuals to be invested in mutual funds.
SEBI is targetting pension funds of especially those employees who are aged below 40-45 years and earn more than Rs 6,500 per month - the threshold limit up to which it is mandatory to participate in employee provident fund schemes regulated by EPFO (Employees' Provident Fund Organisation).
As regulator of mutual fund business in India, SEBI is of the view that the sector's asset base has potential to grow to Rs 20 lakh crore in next five years, from about Rs 9 lakh crore currently.
Under a new long-term mutual fund policy being finalised by it, SEBI will soon ask the government to pave way for a part of EPFO corpus being invested in MF schemes.
The policy has been approved by SEBI board and would soon be notified.
Finance Ministry had permitted EPFO way back in 2008 to invest up to 15 per cent of its corpus in shares or equity linked schemes of mutual funds.
However, due to probable risk aversion on part of the trustees of EPFO, investment in equity-oriented mutual funds is not being made currently.
Further, Labour Ministry last year superseded an earlier decision and specifically stated that no investment is allowed in equity and equity-focussed MF schemes.
SEBI has now suggested change in this Labour Ministry circular to allow EPFO to invest up to 15 per cent of their corpus in equities and mutual funds.
The move would help in channelising retirement money into mutual fund space. It is mandatory to have employee provident fund schemes for all workers earning up to Rs 6,500 a month.
SEBI, however, said that a majority of contribution in EPFO corpus comes from high-end workers for tax benefits and assured returns.
"It should now be suggested that at the choice of the employee/member, contributions to such provident fund programmes can now be offered an option for a part of their corpus to be invested in a Mutual Fund product of the choice of such member/employee," says the SEBI proposal.
SEBI has said that EPFO can approve specific schemes based on their track record and other parameters to be eligible for such investments, which such facilities can be restricted to the workers in a prescribed age group, which can be 25-40 years or 25-45 years.
Also, the amount of such allocation to MF schemes can be restricted to 20-25 per cent of worker's contribution, SEBI said, adding that a similar practice is there in the US.
While eyeing some contribution from about Rs 5.5 lakh crore corpus being managed by EPFO, SEBI feels that age restrictions would safeguard investors from ‘unnecessary risks’ during years closer to their retirement.
At the same time, income-related restrictions would also help keep the low-income employees away from the potential risks associated with capital markets, which has been a major roadblock in pension money being invested in high-risk assets.
