Sebi wants young workers in mutual funds

Feb 20 2014, 17:23 IST
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The regulator will soon ask the government to pave way for a part of EPFO corpus being invested in MF schemes. Reuters The regulator will soon ask the government to pave way for a part of EPFO corpus being invested in MF schemes. Reuters
SummaryPension money should be invested in mutual funds for investors aged below 40-45 yrs, says Sebi.

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.

"Such restrictions will ensure that members of EPFO do not take unnecessary risks during their years closer to retirement," Sebi said.

The total corpus available with EPFO was about Rs 5.46 lakh crore at the end of fiscal 2011-12. The annual incremental inflows consisting of fresh inflows, maturity and interest payments accruing to fund is about Rs 80,000 crore.

Sebi said a potential investment of 15 per cent of EPFO corpus in equities and mutual funds would lead to substantial inflows into the markets.

Even if a small portion, say 5 per cent, is diverted towards equity mutual funds, it may result in new inflows of about Rs 27,300 crore from the existing corpus and Rs 4,000 crore annually from fresh contribution to EPFO, Sebi says.

The EPFO, whose corpus comprises contribution by the employee/member as well as his employer, has so far preferred to invest in government bonds rather than equities to avoid any potential risks to the capital.

Any suggestion for retirement fund of salaried employees to be invested in equities is usually met with strong opposition from trade unions and political parties.

Over 44 per cent of households in the US are estimated to have their savings in mutual funds, while the same figure in India stands at a mere 2.5 per cent.

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