Government Reshuffles Investment Mandate Of Surplus Funds Of PSUs, ESIC

The Union Ministry of Finance has allowed public sector undertakings (PSUs) to invest in all debt mutual fund schemes, regardless of the fact whether the mutual fund schemes are private- or government-owned.

This new order overrides the earlier limitation in investment (May 2017) by PSUs, which restricted that such investments be made in public sector mutual funds only (where the government holds more than 50 per cent of the share).

“Maharatna, Navratna and Miniratna PSUs are permitted to invest in debt-based schemes of the Securities and Exchange Board of India (Sebi)-regulated mutual funds,” media reports quoted a notification by the Department of Investment and Public Asset Management (DIPAM).

DIPAM said in the official memorandum that the guidelines were based on proposals received from central public sector enterprises (CPSEs), mutual funds, and private sector banks following liberalisation of policies and introduction of new monetary instruments for trade in short-term funds.

DIPAM said that the proposals were examined by the inter-ministerial Committee for Monitoring of Capital Management and Dividend. At present, this committee looks after all the affairs relating to capital restructuring of CPSEs.

DIPAM also said that the investment of surplus funds would be guided by the principles of safety of funds and with due diligence. Also, the provisions which defined what a public sector mutual fund means has been deleted, according to various media sources.

DIPAM’s memorandum further said that eligible instruments available for investment of surplus funds of CPSEs are treasury bills, government securities, term deposits with scheduled commercial banks, instruments of commercial banks, loans or deposits with CPSEs, and mutual funds.

The Union Ministry of Finance further said in a memorandum that the period of maturity of any instrument of the investment made by the respective PSU shall not exceed one year from the date of investment with the exception being investments made in banks (term deposits) and government securities. 

The ministry further said that these two exceptions (bank term deposits and government securities) can be extended up to three years.

ESIC permitted To Invest Surplus Funds In Equity

The Ministry of Labour and Employment on December 4, 2022 allowed the Employees’ State Insurance Corporation (ESIC) to invest its surplus funds in equity exchange-traded funds (ETFs). 

Union Labour Minister Bhupender Yadav made this announcement at the 189th meeting of ESIC, which was held under his chairmanship. Yadav said that ESIC will upgrade and modernise its infrastructure under the ‘Nirman Se Shakti’ initiative.

These equity ETF investing by ESIC will, however, be restricted to NIfty 50 and Sensex ETFs. According to a statement by the Press Information Bureau (PIB), initially the investment will start at 5 per cent, and gradually it will be increased to 15 per cent. This will, however, be done only after a review of two quarters.

At the meeting, ESIC accorded approval for investments of surplus funds in equity, restricted to ETFs due to the relatively low returns on debt instruments coupled with the need to diversify.

Further, these equity investments by ESIC will be monitored by the existing Custodian, External Concurrent Auditor and Consultants looking after the debt investments in addition to the management of the ETF for equity.