The Government of India has announced that non-government provident funds, superannuation funds and gratuity funds can invest 5% of their fresh inflows in equity shares as well as 10% in equity -linked mutual funds from April 1, 2005.
The funds could earlier invest only in public sector debt instruments and in term deposits of short duration less than a year.
The Government has also allowed the funds to invest in collateral borrowing and lending obligations (CBLO) issued by the Clearing Corporation of India Limited (CCIL) and approved by the Reserve Bank of India (RBI).
CBLO serves as an alternative to call money and allows participants to borrow and lend funds against securities. Prior to this notification, PFs needed to invest 25% of their corpus in Government Securities (G-Secs) or gilt mutual funds, 15% in state-guaranteed or central-guaranteed bonds, 30% in bonds floated by PSUs and Public Financial Institutions (FIs,) and from the balance of 30%, 10% could be invested in investment grade corporate bonds and 20% in any of the first three categories.
Quantitative restrictions will still apply, however. The Reserve Bank of India (RBI), in its circular dated January 29, 2005, has advised that the aggregate holding of equity shares of Trent Ltd. by Foreign Institutional Investors (FIIs) in the primary/secondary markets has reached the limit of 22% of its paid up capital. Therefore no further purchase of equity shares of the company on behalf of FIIs will be allowed without obtaining prior clearance of the Reserve Bank of India.
The new guidelines will be effective from April 1, 2005, subject to clearance from the labour ministry.