In a significant move, the Central Board of Trustees (CBT) of the Employees’ Provident Fund Organisation (EPFO) has approved guidelines to allow Provident Fund investments in units of public sector-sponsored Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs).
This marks a significant step in diversifying EPFO’s equity market investments, expanding options beyond the current reliance on Exchange Traded Funds (ETFs).
In April 2015, the retirement fund body was allowed to invest anywhere between 5 per cent and 15 per cent of all its fresh accretions in the equity market. However, it could do so only through ETFs.
- Also read: All you need to know about InvITs and infrastructure funding
At the 236th Meeting of CBT, EPFO here on Saturday, the CBT among other decisions also approved a ‘Redemption Policy’ for ETF investments in Central Public Sector Enterprises (CPSEs) and Bharat 22 to generate income for the EPF Scheme’s ‘Interest Account’.
Saturday’s CBT meeting was chaired by Union Labour & Employment and Youth Affairs & Sports Minister Mansukh Mandaviya.
So far, EPFO has invested in ETFs based on the BSE Sensex Index or NSE Nifty 50 Index. It has made investments in CPSE ETF and Bharat 22 ETF. As of end March 2024, EPFO has invested about ₹2.4 lakh crore in ETFs.
Under the new redemption policy, EPFO can reinvest 50 per cent of ETF redemptions into equities, with the rest going to asset classes such as G-Secs and debt instruments.
InVITs and REITs are innovative financial instruments introduced to unlock capital in infrastructure and real estate sectors. They function as pooled investment vehicles, similar to mutual funds, but focus on income-generating infrastructure assets (InVITs) or commercial real estate properties (REITs). These instruments provide investors with steady returns in the form of dividends and capital appreciation.
In India, the journey of these vehicles began with regulatory frameworks introduced by SEBI in 2014, paving the way for their listing and trading. Since then, India has seen the establishment of five REITs and 19 InVITs.
As of end September 2024, these vehicles have collectively raised over ₹1.5 lakh crore, with REITs contributing significantly through public markets and InVITs leveraging both institutional and retail investments.
They have played a crucial role in channeling long-term funds into critical sectors, reducing the financing burden on developers, and offering retail investors access to high-value assets.
OTHER DECISIONS
The CBT on Saturday recommended EPFO Amnesty Scheme 2024 to the Central Government. The initiative is designed to encourage employers to voluntarily disclose and rectify past non-compliance or under-compliance without facing penalties or legal repercussions.
A simple online declaration from employers will be sufficient to avail the scheme benefits. By providing a limited window for voluntary compliance, the scheme aims to extend social security benefits to more employees, rebuild trust with employers, and promote formalization of the workforce.
This amnesty scheme will support the implementation of Employment Linked Incentive Scheme, announced in the Budget 2024-25, to foster employment generation and incentivise formalisation of jobs in the economy.
It is expected that several small establishments (under MSME sector or otherwise) may wish to avail of the benefits under the ELI Scheme but would be worried in enrolling under EPFO. This Amnesty Scheme would provide the confidence to such employers to enrol without any fear or additional financial burden.
In another significant decision, the CBT approved an amendment to the EPF Scheme, 1952 on the interest computation front.
Per existing provisions, for the claim settled till 24th of the month, interest is paid only up to the end of the preceding month. Now, the interest will be paid to the member up to the date of settlement. This will result in financial benefit to the members and reduce the grievances.