The Labour Ministry has notified the changes in the investment pattern of the Employees Provident Fund Organisation(EPFO), which allowed it to make an investment of up to 5 percent of its investible surplus in Alternative Investment Funds (AIFs).
- This change came after the Government’s recent modification over the investment pattern of Non-Government Provident Funds, Superannuation Funds, and Gratuity Funds to invest in AIFs.
- The EPFO manages more than Rs 12 lakh crore of retirement savings of over six crore subscribers. The new investment pattern will be effective from March 15, 2021.
- Target – The government plans to raise this to 100,000 startups and over 100 unicorns by 2025 by helping Indian startups become global giants.
i.In March 2021, the Ministry of Finance, Department of Financial Services, made changes over the investment pattern of the above-mentioned funds with certain conditions.
ii.The changes allowed the funds to invest up to 5 percent in the units of Category I and Category II of AIFs that support infrastructure, micro, small and medium enterprises (MSMEs), and social venture capital funds and regulated by the Securities and Exchange Board of India(SEBI).
Conditions for investment in AIFs:
i.Investments could be made only in AIFs with a corpus equal to or more than Rs 100 crore.
ii.Maximum Exposure to a single AIF shall not exceed 10 percent of the AIF size (this limit would not apply to a government-sponsored AIF).
iii.Directly or indirect investments in securities of the companies or funds which are incorporated and/or operated outside India is not allowed.
iv.AIF’s sponsor should not be the promoter/the promoter group of the Fund.
v.AIFs should not be managed by someone who controlled by the promoter group.
vi.Category 1 AIF – Under which investments should be in Small and Medium Enterprises(SME), infrastructure, venture capital(VC) or social welfare entities.
vii.Category II AIF – For Category II AIFs, at least 51 percent of the funds should be invested in either of the SME, infrastructure, VC or social welfare entities.
About Alternative Investment Fund (AIF):
AIF is a privately pooled investment vehicle that collects funds from sophisticated investors, whether Indian or foreign, for investing it by a defined investment policy for the benefit of its investors.
Categories of AIFs:
- Category I AIFs – Venture capital funds (Including angel funds), SME Funds, social venture funds, infrastructure funds (Investment for start-up SMEs, infrastructure)
- Category II AIFs – Real estate funds, Private Equity funds (PE funds), funds for distressed assets
- Category III AIFs – Hedge funds, Private Investment in Public Equity Funds (PIPE) Funds