EPFO Eyes Investments in Startups.. New Proposal Under Consideration

The Employees' Provident Fund Organisation (EPFO) is exploring ways to diversify its investment portfolio and improve returns by investing in high-growth sectors. The proposal under consideration involves allocating up to 3% of its annual incremental funds to startups and Alternative Investment Funds (AIFs). The government had permitted EPFO to explore investments in high-growth areas five years ago. Against this backdrop, the Department for Promotion of Industry and Internal Trade (DPIIT) has suggested that EPFO participate in the recently launched Startup India Fund of Funds 2.0. The Securities and Exchange Board of India (SEBI) is also reportedly discussing EPFO investments in Category I and Category II AIFs. The proposal is expected to be placed before the EPFO Central Board of Trustees at its meeting next month, chaired by Union Labour Minister Mansukh Mandaviya.

Initially, EPFO is considering investing through institutions such as the National Investment and Infrastructure Fund (NIIF) and the Small Industries Development Bank of India (SIDBI), including through the Startup India Fund of Funds 2.0. Under the Finance Ministry's policy, EPFO can allocate up to 5% of its incremental funds to asset-backed and trust-structured investments. Category I AIFs typically support startups, small businesses, infrastructure projects and venture capital, while Category II AIFs include private equity, real estate and private debt funds. To manage investment risks, the proposal suggests a minimum fund size of ₹100 crore for each AIF, limits on the amount invested in a single fund and restrictions on investments in entities registered overseas. EPFO currently manages more than ₹30 lakh crore in funds belonging to around 30 crore subscribers.