EPFO Plans Investment in Startups and Alternative Investment Funds
NEW DELHI: The Employees Provident Fund Organisation (EPFO) is set to develop guidelines for investing in alternate investment funds (AIFs) five years after the government permitted such investments. The retirement savings body is considering a proposal to allocate up to 3% of its annual accretions into category I and category II AIFs regulated by the Securities and Exchange Board of India (Sebi). This proposal was discussed during an investment committee meeting last Thursday.
The Department for Promotion of Industry and Internal Trade (DPIIT) recently reached out to EPFO to encourage participation in the newly launched Startup India Fund of Funds 2.0. This request has prompted EPFO to reassess its approach to AIF investments. Initial plans involve channeling worker capital through established institutions like the National Investment and Infrastructure Fund (NIIF) and Sidbi’s Startup India Fund of Funds 2.0. The proposal will be reviewed by the central board of trustees, led by Labour Minister Mansukh Mandaviya, in November.
This initiative represents a significant shift from traditional, low-risk debt instruments toward risk capital, with the potential for higher long-term returns for millions of salaried subscribers. Currently, EPFO manages approximately Rs 30 lakh crore for nearly 30 crore members. The finance ministry allows EPFO to invest up to 5% of its fresh accretions in asset-backed and trust-structured investments, but it has yet to invest in category I and category II AIFs regulated by Sebi. Category I AIFs focus on development-oriented funds, while Category II AIFs encompass private equity, real estate, and private debt funds. To mitigate market volatility risks, the proposal includes strict safeguards, such as a minimum AIF corpus of Rs 100 crore and limits on single-fund exposure.
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