ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has drafted new provident fund rules with the main emphasis on improving/tightening governance structure of the employees’ provident fund/trust, coverage of risk vis-a-vis ensuring possibility of maximum return on the fund.
“Furthermore, the new rules are comprehensive and provide more investment avenues to the fund/trust to increase employees’ wealth,” says a statement issued by the commission on Monday.
According to the statement, the draft is based upon the redundancy of certain provisions in the existing Employees’ Provident Fund (Investment in Listed Securities) Rules, 1996, along with SRO 261(I)/2002 dated May 10, 2002.
The new rules have been reviewed by the Ministry of Finance and have been published in the official gazette vide SRO 80(I)/2014.
All objections and suggestions received about the draft new rules will be considered by the SECP before they are finalised.
The new rules were formulated with the main emphasis on improving/tightening governance structure of the employees’ provident fund/trust, coverage of risk vis-a-vis ensuring possibility of maximum return on the fund.
Furthermore, the new rules are comprehensive and provide more investment avenues to the fund/trust to increase employee’s wealth. The salient features of the new rules with respect to risk coverage and enhancement of employees’ wealth are as under:
The total investment cap out of the fund in the capital market or in the money market collective investment schemes is restricted to 70% of the fund.
The fund/trust has the liberty to either exhaust its 70% limit by investing the whole amount in the money market collective investment schemes or by investing maximum 30% in the capital market and remaining 40% in the money market schemes.
The investment cap for fund/trust for investing in capital market is restricted to 30%. It may be noted that the money market collective investment schemes are operationally administered by the SECP under the 2008 Non-Banking Finance Companies and Notified Entities Regulations.
The investment criteria has been tightened where investment is made in either listed equity or listed debt securities.
The fund/trust will appoint an investment adviser where aggregate investment in listed securities is Rs 50 million or above or twenty percent of the size of the employees’ provident fund, whichever is lower.
In case of off market transactions, it is ensured in the new rules that these transactions occur at arm’s length.
In order to build a portfolio of investment, the fund/trust is restricted to invest only 10% of the fund in a single company.
The aggregate investment in associated undertakings is restricted to 10% of the size of the fund. Investment in IPO has been allowed subject to the stringent conditions provided in the new rules.
Investment is restricted in the securities where the issuer of the security has defaulted or rescheduled its financial obligations.
The investment criteria have been tightened where investment is made in money market collective investment schemes.
In order to build a portfolio of investment, the aggregate investment in collective investment schemes, other than money market schemes, managed by a single asset management company is restricted to 10% of the size of the fund. In case of money market listed collective investment schemes managed by a single asset management company, the aggregate investment in listed collective investment schemes is restricted to 30% of the size of the fund. The draft new rules have also been placed on the SECP’s website, which can be downloaded from the link http://www.secp.gov.pk/notification/pdf/2014/SRO_80_2014.pdf.
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