New Delhi/Calcutta, Aug. 14: The government today allowed non-government provident, pension and gratuity funds to invest up to 15 per cent of their corpus directly in the shares of companies that are permitted to trade in the derivatives segment of the Bombay Stock Exchange or the National Stock Exchange.

Private provident and pension trusts till date were allowed to invest only 5 per cent of their fund in the equities of companies that have investment grade credit ratings from at least two agencies.

Under the revised guideline that will come into effect from April 1, 2009, these trusts can now invest in the shares of companies that have an investment grade rating from at least one agency.

Private trusts can now also invest in the equity-linked schemes of mutual funds.

“This will be a big boost for domestic stock markets, but not in the short-term,” said Sanjay Sinha, chief investment officer of SBI Mutual Fund.

As of March 2007, there were 2,589 exempted provident funds managing nearly Rs 70,000 crore assets. While exempted funds are administered by the Employees Provident Fund Organisation (EPFO), there are excluded funds whose exact number and asset size are difficult to quantify. A 15 per cent of the Rs 70,000 crore translates into Rs 10,500 crore.

“This is big money for the sagging stock markets. If we take into account the incremental contributions every year, it will definitely reduce the volatility in stock markets,” Sinha said.

The revised guidelines have also relaxed the investment norms in government securities.

Earlier, non-government provident and gratuity funds had to invest 25 per cent in central government securities and 15 per cent in state government securities. Under the revised pattern, the threshold investment in government securities (including central and state governments) has been brought down to 35 per cent.

Besides, the trusts will have flexibility to exceed the investment cap by up to 10 per cent of the limit prescribed during the year.

Private provident funds can now also invest in term deposits (of not less than one-year) of scheduled commercial banks subject to specified financial criteria.

The revised guideline has also changed the investment pattern of non-government provident, superannuation and gratuity funds by allowing them to trade in securities. Non-government provident funds can invest in the bonds of multilateral agencies, such as the World Bank and the Asian Development Bank, as well.

A senior finance ministry official said the government would impress upon the EPFO, which has a corpus of over Rs 2,40,000 crore, to follow the new investment guidelines.