The Government has appointed UTI MF and SBI MF as fund managers of the Postal Life Insurance Fund (POLIF) and Rural Postal Life Insurance Fund (RPOLIF), a move which will pave the way for investment of part of these funds in stock markets.
The cabinet has given its go-ahead to the appointment of these public-sector mutual funds as managers of the over Rs.10, 000 crore corpus of these two funds. It has also approved setting up of an investment board for deciding investment policies. This would primarily be applicable to new deposits into these schemes as much of the existing corpus in already invested in government bonds. While focusing primarily on safety of investments, the fund managers would seek investment avenues that would fetch better returns for these funds. In effect, this could mean investing part of the corpus of these funds in stocks, mutual funds which provide higher returns.
While POLIF has a corpus of Rs 8,934 crore, deposits under RPOLIF stood at Rs 1,625 crore as on March 2006. As of now, the entire corpus of these funds go into government's special deposit scheme which fetches a fixed return of 8% but is fully secured due to sovereign backing. The finance minister P Chidambaram said the scheme has been formulated on the lines of the National Investment Fund -- a disinvestment corpus, which has been entrusted to three PSU managers. Norms for National Investment Fund stipulate that only up to 15% of the total funds can be invested into equity funds while 85% has to be parked into debt funds.
In the case of postal funds, however, the government constituted an investment board for laying down policy guidelines and investment strategy for the postal funds. A chief investment officer with the rank of additional secretary will be appointed along with four directors for managing and devising day-to-day strategies for these investments. In effect, this could mean that more than 15% of the funds could be invested in stocks and mutual funds.
Mr. Chidambaram said the move to allow SBI and UTI mutual funds follows the decision of the Department of Post to invest the funds in a manner which will bring better returns to the investors. Till now, funds from both postal schemes were directed towards Special Deposit Scheme under which government gives a fixed return of 8%. Investors will be able get a higher return through investment of their funds in mutual funds. The finance minister said since LIC is a competitor for POLIF and RPOLIF, it was not considered to manage the funds.
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