EPFO to Invest in Alternative Funds for Employees Savings

Mumbai, October 29: The Employees’ Provident Fund Organisation (EPFO) is preparing new guidelines to invest in Alternative Investment Funds (AIF). This initiative could link the savings of over 300 million employees to investment options such as startups and private equity. The proposal suggests allocating up to 3% of the new annual deposits into selected AIFs, although it still awaits approval.

EPFO currently manages approximately ₹30 lakh crore in retirement savings for its members. If approved, this proposal could significantly alter EPFO’s investment strategy, opening avenues for capital flow to startups and other developing businesses.

The proposal is set to be presented to the central board of trustees in November, chaired by Union Labour Minister Mansukh Mandaviya. Only after the board’s approval will the next steps be determined.

This move aims to broaden EPFO’s investment scope, which has primarily focused on government securities, bonds, and other traditional investment avenues. The new proposal could allow for investments in rapidly growing businesses.

Under the proposed guidelines, EPFO may invest in SEBI-registered Category-I and Category-II AIFs. Category-I AIFs typically invest in startups, small businesses, infrastructure, and venture capital, while Category-II AIFs include options like private equity, real estate, and private debt.

Investing through these funds would provide EPFO with opportunities beyond traditional investments, although such investments carry risks and do not guarantee returns.

Reports indicate that the Department for Promotion of Industry and Internal Trade (DPIIT) recently invited EPFO to participate in the newly launched Startup India Fund of Funds 2.0, prompting discussions on establishing comprehensive rules for AIF investments.

In the initial phase, EPFO is considering investments through the National Investment and Infrastructure Fund (NIIF) and the Small Industries Development Bank of India (SIDBI).

The proposed guidelines will include several conditions to protect investors’ interests, such as a minimum fund size of ₹100 crore for AIFs, limits on investments in individual funds, and restrictions on investments in companies registered abroad.

Under the notified investment rules by the Finance Ministry, EPFO can allocate up to 5% of its new deposits into asset-backed and trust-structured investments. However, it has yet to invest in SEBI-registered Category-I and Category-II AIFs.