The EPFO's investment committee had proposed
PF rate at 8.7% for 2014-15, slightly lower than 8.75% of last fiscal and much lower than the trade union demand of 9-9.5%. The government has already fixed the public provident fund rate, which competes with EPF, at 8.7% for 2014-15.
"The PF rate for 2014-15 and new investment norms are in the agenda for Tuesday's meeting," a CBT member who did not wish to be named told FE.
The main reason for lowering the PF rate could be the easing of bond yields in recent months as compared to last year.
The yield on the 10-year benchmark government bond is near about 8.5%, as against 8.5-9.2% range seen in 2013-14. Corporate bond yields have also softened to near 9% compared with 9.5% last year. Going forward, bond dealers expect yields to remain stable or soften further on expectation of RBI's rate cut on the back of lower global crude oil prices and sliding inflation rate.
Since EPFO determines the PF rates based on the interest earned on its investment in bonds, a softening of yields makes a case for a slightly lower interest rate for subscribers.
Sources said a stormy session is expected as most of the trade union members are opposed to allowing EPFO to invest in equities.
The EPFO, which has
an investment corpus of
R6.3 lakh crore, invested R86,077 crore in bonds during 2012-13. If it is allowed to invest 15% each in equities and ETFs, more than R26,000 crore of incremental funds can flow into the equity market annually.
According to the finance ministry, the draft guideline that is to be implemented from April 2015, provident and pension funds may be allowed 15% of the incremental each in equity and exchange-traded funds.
In contrast, the exposure in government bonds is to
be lowered to 40% from the earlier 55% and that in corporate bonds and bank fixed
deposits is to remain the same at 40%.
Further, the finance ministry has proposed some relaxation in PFs investing in bank deposits.
While the earlier rule allowed PFs to invest in fixed deposits of only those banks which had NPAs of less than 2%, the new rule extended it to not more than 4%.
Also, the PFs have been allowed to invest in rated infrastructure debt funds asset backed securities.
PFs can also invest some money in debt mutual funds regulated by the Securities and Exchange Board of India, said the new investment guideline.
In 2008, the finance ministry had proposed 15% equity exposure for PFs but the trustees of EPFO did not approve it, fearing erosion in the value of employees' hard-earned long-term savings.