EPFO to soon invest in alternative investment funds
What's the story
The Employees' Provident Fund Organisation (EPFO) is preparing guidelines to invest in alternative investment funds (AIFs). This comes five years after the government approved such investments. The Securities and Exchange Board of India (SEBI) recently discussed a proposal to invest up to 3% of EPFO's annual accretions into Category I and II AIFs. This could mark a major change in how the retirement fund body invests workers' savings.
Investment strategy
Proposal to be presented in November
The proposed move would give EPFO exposure to start-ups and other growth-oriented investments, beyond its traditional debt instruments.
The proposal will be presented to the central board of trustees, headed by Labour Minister Mansukh Mandaviya, in November.
This comes after a September letter from the Department for Promotion of Industry and Internal Trade (DPIIT), inviting EPFO to join the newly launched Startup India Fund of Funds 2.0.
Investment guidelines
Initial focus on institutional entities
Initially, EPFO is looking at investing through institutional entities like the National Investment and Infrastructure Fund (NIIF) and SIDBI's Startup India Fund of Funds 2.0.
Under the finance ministry's notified investment pattern, EPFO can invest up to 5% of its new accretions in asset-backed and trust-structured investments.
However, it has not yet invested in SEBI-regulated Category I and II AIFs.
Categories
Proposed framework for AIF investments
Category I AIFs usually invest in start-ups, small firms, infrastructure, and venture capital.
Meanwhile, Category II funds comprise private equity, real estate, and private debt funds.
The proposed framework for AIF investments has safeguards such as a minimum corpus of ₹100 crore per fund, caps on exposure to individual funds, restrictions on investment in foreign companies, and requirements for fund manager independence.