In a market friendly move, the government will make it mandatory for non-government provident funds to invest a minimum of 5 per cent of their investible funds in equity or equity related instruments.
The new investment pattern for provident funds, to be notified shortly, will prescribe "investment of minimum 5 per cent and up to 15 per cent of the investible funds in equity and equity related instruments," Finance Ministry said in a statement.
The modified norms, it said, seeks to provide greater flexibility to subscribers to maximise returns as also to provide long term resources to productive sectors in the economy.
These guidelines with regard to investment funds will apply on Non-Government Provident Funds, Superannuation Funds and Gratuity Funds.
The investment pattern of the Employees Provident Fund Organisation (EPFO), which is the largest non-government provident fund body, is decided by the central board of trustees (CBT), headed by Labour Minister.
As per the modified investment norms, the limit for parking funds in Central Government Securities, State Government Securities, Government Guaranteed Securities and units of gilt Mutual Funds, will be reduced to 50 per cent from 55 per cent.
In debt securities, the term deposits of the banks, the provident fund could invest 35-45 per cent of the fund as against the earlier limit of 55 per cent.
They will also be allowed to invest upto 5 per cent in asset backed securities, units of real estates/Infrastructure Investment Trusts.
It also provided a new investment category for ETF (exchange traded funds) and index funds. The provident fund would be required to invest part of the funds in ETFs.
The trust/fund should, it added, should adopt and implement prudent guidelines to prevent concentration of investment in any one company, corporate group or sector.