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Recognised Provident Funds Allowed to Invest in Equities & Mutual Funds

November 10th, 2005 | general

The CBDT has amended the Income Tax Rules vide Notification No 220/2005 dated 3rd November, 2005. This amendment allows Recognised Provident Funds to invest in equities & other securities.

Rule 67 of the Income Tax Rules, 1962, governs the investment avenues available to a Recognised Provident Fund.

Minimum Investment to be made as under:

Investment Avenue Min Invt Moneys received on maturity of investment made before 1st April, 2005 [as reduced by obligatory outgoings] can be invested as under:
  1. Central government securities, or
  2. Mutual funds dedicated to investment in government securities#
 25%
  • The total portfolio of central & state government securities [sr no’s 1 & 3] can be divided into tradable & non-tradable categories
  • A maximum of 10% of the total government securities at the end of the preceding financial year can be treated as tradable & used for active management
  • The tradable portion as determined above & the investments made in mutual funds [sr no’s 2 & 4] should be marked-to-market at the end of the financial year
  • The investment in any single mutual fund cannot exceed 5% of the total fund value at any point of time
  1. State government securities, or
  2. Mutual funds dedicated to investment in government securities#, or
  3. Other negotiable securities guaranteed by either the central government or any state government
 15%
  1. Bonds / securities of public financial institutions / public sector company / public sector bank, or
  2. Term Deposit Receipts of up to three years issued by a public sector bank, or
  3. Collateral Borrowing & Lending Obligation issued by the Clearing Corporation of India Ltd
 30%
  • Under this head, up to 5% of the investment can be made in the equity shares of any company*
  1. Any of the Above
 30%
  • Under this head, up to 10% of the total fund can be invested in either debt instruments of any company* or in equity linked schemes of any mutual fund#

*: Investment in companies with an investment grade debt rating from at least two credit rating agencies eligible

#: Investment in mutual fund regulated by SEBI eligible

In case the investment ratings of any of the investments falls, then the option to exit from such investment should be exercised, and the funds released should be invested as above.

Investments made on or after 1st April, 2005 but before the issue of this notification [based on the earlier notification] shall be deemed to have been made in the manner as specified herein.

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