The Securities and Exchange Commission of Pakistan (SECP) has reviewed and proposed amendments in the Employees Provident Fund (EPF) Rules 1996, to allow EPFs to invest in index funds. This was done keeping in view features of index funds, international practices as well as advantages and risks associated with investment in index funds.
The revised rules provide that for the purpose of investment by a provident fund in listed securities, the company shall have exhibited return on equity 215 percent higher than last auction cut-off rate of 5-year Pakistan Investment Bonds (PIB).
This condition would replace the existing condition for making investment in listed securities that has paid not less than 15 percent dividend to its shareholders during the last three consecutive years.
Maximum investment cap of an EPF in unit trust is kept at 50 percent, including the maximum limit of 30 percent for investment in listed securities.
In addition, closed-end index fund has been defined and explained. The total investment in index funds has been restricted up to 10 percent of the provident fund. Moreover, investment in index fund by an EPF has also been restricted up to 5 percent of the fund size. EPF can be invested only in those index funds and/or unit trusts, which have been issued "A" credit rating by a Credit Rating Company.
Under the proposed, revised rules, close-end funds are required to provide information regarding investment of provident fund to the SECP, as prescribed by the Commission from time to time.
The revised rules have been notified in the official gazette and posted on the SECP's website, www.secp.gov.pk to solicit comments and suggestions by October 6.
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