EPFO investment in AIFs could begin with an allocation of up to 3 per cent of its fresh annual accretions, as the retirement fund body prepares guidelines for entering alternative asset classes.
The proposal was discussed at a meeting of the Employees’ Provident Fund Organisation’s (EPFO) investment committee last Thursday, according to a Times of India report.
It covers Category I and Category II alternative investment funds (AIFs) regulated by the Securities and Exchange Board of India (SEBI). The proposal will now be placed before the Central Board of Trustees (CBT), led by Labour Minister Mansukh Mandaviya, in November.
The discussions follow a September communication from the Department for Promotion of Industry and Internal Trade (DPIIT). The department had sought EPFO’s participation in the recently launched Startup India Fund of Funds 2.0.
EPFO may route investments through institutional funds
The initial approach could involve channelling workers’ savings through established institutions such as the National Investment and Infrastructure Fund (NIIF) and SIDBI’s Startup India Fund of Funds 2.0.
The proposal marks a potential expansion beyond EPFO’s traditional investments in debt instruments. It aims to provide exposure to asset classes that could generate higher long-term returns, while supporting startups and other growth-oriented sectors.
The Finance Ministry’s notified investment pattern permits EPFO to allocate up to 5 per cent of fresh accretions to asset-backed and trust-structured investments.
However, the organisation has not yet invested in SEBI-regulated Category I and Category II AIFs.
EPFO manages approximately Rs 30 lakh crore in retirement savings belonging to nearly 30 crore members.
Category I and II AIFs cover startups and private equity
Category I AIFs invest in development-oriented sectors with positive economic spillovers. These include startups, small and medium enterprises, infrastructure, social ventures and venture capital.
Category II AIFs include private equity funds, real estate funds and private debt funds. These funds do not fall under Category I or Category III classifications and generally do not use leverage or borrowing, except as permitted under regulations.
An allocation could therefore provide EPFO exposure to businesses and projects beyond conventional debt investments.
Proposal includes safeguards for workers’ savings
The proposed framework includes safeguards intended to limit investment risks and protect members’ retirement savings against market volatility.
These include a mandatory minimum corpus of Rs 100 crore for each AIF and caps on exposure to individual funds.
The proposal also seeks to prohibit investments in foreign-incorporated entities. Fund managers would be required to remain independent of the promoters.
The guidelines are still under consideration. Any investment by EPFO in these funds would depend on the proposal’s review and approval by the CBT.
