The Employees' Provident Fund Organisation (EPFO) is preparing guidelines to invest in alternative investment funds (AIFs), potentially opening a new avenue for deploying retirement savings into startups and other growth-oriented sectors.
According to a report by The Times of India, a proposal to allocate up to 3% of EPFO's fresh annual accretions to Category I and Category II AIFs was discussed at an investment committee meeting last Thursday.
The development comes five years after the government permitted the retirement fund body to enter these investment categories.
EPFO Investment Proposal To Reach Trustees In November
The proposal is expected to be presented to EPFO's Central Board of Trustees, chaired by Union Labour Minister Mansukh Mandaviya, in November.
Discussions gained momentum after the Department for Promotion of Industry and Internal Trade (DPIIT) wrote to EPFO in September, seeking its participation in the Startup India Fund of Funds 2.0.
Initially, EPFO may channel investments through institutional platforms such as the National Investment and Infrastructure Fund (NIIF) and the Small Industries Development Bank of India (SIDBI).
Existing Finance Ministry investment guidelines permit EPFO to allocate up to 5% of fresh accretions to asset-backed and trust-structured investments.
However, the organisation has yet to invest in AIFs regulated by the Securities and Exchange Board of India (SEBI).
Category I AIFs generally invest in startups, smaller businesses, infrastructure and venture capital.
Category II funds cover investments such as private equity, real estate and private debt.
The proposed framework includes several safeguards intended to manage investment risks.
These include a minimum fund corpus of Rs100 crore, limits on exposure to individual funds and restrictions on investing in entities incorporated overseas.
The guidelines would also require independence among fund managers.
According to the report, EPFO currently manages approximately Rs30 lakh crore in retirement savings belonging to nearly 30 crore members.
The proposed investment framework could diversify EPFO's portfolio beyond traditional debt instruments while supporting domestic startup financing.
However, any allocation will depend on trustee approval and the final investment guidelines.
