The labour ministry has notified the changes in the investment pattern of the Employees Provident Fund Organisation (EPFO), paving way for the retirement fund body to invest up to 5% of its investible surplus in alternate investment funds (AIFs) that support infrastructure, micro, small and medium enterprises (MSMEs), venture capital funds and social venture capital funds.
The EPFO manages more than Rs 12 lakh crore of retirement savings of over six crore subscribers. The new investment pattern will be effective from March 15, 2021.
EPFO, however, will have to seek the approval of its central board of trustees before making such an investment which is considered high risk.
Finance ministry, had, in March this year allowed non-government provident funds, superannuation funds and gratuity funds to invest in units issued by Category I and Category II AIFs regulated by the Securities and Exchange Board of India (Sebi) after persistent demand by industry to make domestic capital available for investment in start-ups.
With this, EPFO will have the option to invest in AIFs whose corpus is equal to or more than Rs 100 crores with maximum exposure to a single AIF capped at 10% of the AIF Size. “However, this limit would not apply to a government sponsored AIF,” the ministry said in a recent notification.
Further, at least 51% of the funds of such AIF shall be invested in either of the infrastructure entities or SMEs or venture capital or social welfare entities.
However, the Employees Provident Fund Organisation (EPFO) will not be allowed to invest directly or indirectly in securities of the companies or funds incorporated and/or operated outside India. “The sponsor of Alternative Investment Fund should not be the promoter in the Fund or the promoter group of the Fund and the AIFs shall not be managed by investment managers, who are either directly or indirectly controlled or managed by the Fund or the promoter group of the Fund,” it said.
For Category II AIFs, at least 51% of the funds of such an AIF should be invested in either of the infrastructure, SME, venture capital or social welfare entities.
The government plans to raise this to 100,000 startups and over 100 unicorns by 2025 by helping Indian startups become global giants.