As was expected, free from the shackles of CPI(M) and Left Parties, the Manmohan Singh Government has started asserting itself. In the first reform after winning the confidence vote, the government today appointed three private asset management companies (AMC) to handle the provident fund corpus of about Rs.2.5 lakh crore ($62.5 billion) from 40 million employees in the organized sector.
So far the State Bank of India (SBI) -a public sector but largest bank in India- was singularly managing the funds. The fund paid an interest of 8.5% last year. From September this year however besides SBI, Reliance capital, HSBC and ICICI prudential will also manage the funds for a fee.
The four companies were short listed from 10 bidders, the lowest bidder getting the first chance. SBI and Reliance Capital quoted 0.01% as fee and were tied at third place. While allowing the new firms to handle the fund, the Board of Trustees for Provident Fund overruled an opinion of the law ministry that AMC could not handle the provident fund corpus.
However there is a rider for the investment of the corpus. As per the existing rules, the AMC can invest the funds only in bonds and securities of state governments and public sector units. The funds cannot be invested in stock markets. However political observers feel that if UPA comes to power again in next parliamentary elections, a portion of the corpus of PF fund will be invested in stock market too.
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