|
Risk-free PFs
The labour ministry is opposed to investing provident fund monies in equity. According to it, the primary function of the employees' provident funds is to give workers safe and assured, rather than high and risky, returns. The Dave committee's recommendation to allow up to 10 per cent of PF monies to be invested in domestic equity thus fails to pass muster with the risk-averse labour ministry. There is no point blaming it. The share markets are volatile. The attraction of equities is not dividend per se, which, in view of high PEs, yields a modest return, but capital appreciation. Profiting from share price fluctuations requires a John Maynard Keynes, who enriched the University of Cambridge. Such genius can hardly be commandeered by trustees administering the provident funds, including the non-government ones.The better-safe-than sorry principle results in low returns to employee-savers in the rising nil income tax bracket; (the better-paid employees are compensated by tax saving). It may seem that the risk of investing, say, 10 per cent of annual incremental provident funds, in equities could be worth taking. However, even market-savvy mutual funds (MFs) are not sanguine, seen from their mandatory notice that MF investments are subject to market risks and NAVs can fluctuate in the capital/debt market. UTI announces an assured return for one year at a time for its five-year monthly income scheme. Also, investment in high-rated corporate debt is not necessarily risk-free; ratings are often down-graded. No wonder PFs have not taken advantage of the freedom to invest (10 per cent of their incremental funds) in corporate debt. Even so, the labour ministry is worried. The charter of the ruling coalition parties is committed to `mandated investments' by PFs in equities; this hangs like the sword of Damocles on PFs. Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
|