Govt gives exit option to PF fund managers

NEW DELHI: The government has, for the first time, provided an exit option for provident fund managers, by giving them the leeway to withdraw their investment, if it does not meet the investment norms set by credit rating agencies.
What this implies is that if a security in which the provident funds have invested is downgraded by the credit rating agencies, the fund managers would have the right to pull out their investments.
The new investment guidelines laid down by the finance ministry provides a window for exit and also freedom to the fund managers to re-invest the interest earnings on the Special Deposit Scheme (SDS).
The exit option has been provided now taking into account the default in payments on the bonds issued by a few entities such as IFCI.
Until the new guidelines came into force last week, the PFs had no choice but to hold on to the securities until maturity, well after they were consigned to junk bond status. This is because they were bound by the rigid investment guidelines.
Besides needing to hold on securities until maturity, provident funds are also not allowed to trade in the bond holdings they have built up.
Apart from the exit option, the new guidelines have virtually put the onus on investing the interest earned on the SDS on the Trustees of the provident funds and their fund managers. Until this year, the interest earnings were allowed to be invested back in the SDS.
The government has stopped that in the latest notification on the new investment pattern for non-government employees provident funds, as part of the move to wind down the SDS in the medium term.
According to government officials, the interest earnings on SDS estimated to be over Rs 9,000 crore could be invested according to the new investment pattern laid down for EPFs.