KARACHI: The Securities and Exchange Commission of Pakistan (SECP) draft of “Employees’ Provident Fund in listed securities” rules released on Friday empower (corporates) to invest as much as 70 per cent of the employees’ provident fund in listed securities.

It clearly is paving a way to put employees’ hard-earned savings of over a life-time to jeopardy.

Several old time money managers of companies recall that in the past, the amount in employee funds could be invested only in risk-free instruments.

One serving senior banker concurred adding that the PF rules at the time provided that employees’ money could not just be invested only in risk-free instruments, but only in government guaranteed instruments to ensure complete safety.

Thus the biggest part of the fund at the time found its way into the Defense Saving Certificates.

So what made the government change the safety rules? Since the collective amount of all employee money in provident funds of all corporates and other organisations, could run into billions, stock brokers may have exercised their influence with the government, when rules were changed in favour of investment in shares, some observers expressed suspicion.

The provident fund is the collective amount retained by the employer, usually as 10 per cent from the basic pay of employees each month over the period of term of employment which could stretch to decades.

Could the employer in hold of the employee funds have the right to invest such an amount in high-risk stock market?

A senior official at the SECP told Dawn on Saturday: “Your concern is genuine”. He, however, qualified it with the statement that when invested in just the fixed income securities, the returns may not cover the inflation, which was why a mix of investment avenues was suggested.

The SECP official, however, said that the rules released by the chief regulator on Friday, were merely guidelines and open to public opinion.

He asserted that PF committee in each organisation could follow its own independent policies.

“If you hedge against risk, you have to compromise on returns,” he said, but admitted that safety of the funds should be a priority.

The official at the regulators’ office was also bitter about the way many companies put to use the employees’ money.

“I have discovered instances, where the PF amount is lent by the companies to sister concerns or associated undertakings,” he asserted.

A senior banker, R M Alam said that in the high income countries, each employee has the right even to decide the particular stock in which he would like his PF fund to be invested, where the rules permit investment in stocks.

He stressed that the risk-free instruments were surely the best option in our case since the dealings at the stock market were always shrouded in suspicion of unfair dealings and insider trading.

The PF committee formed of representatives from the employer and employee are usually overpowered by the former.

“There is scarcely a check and balance on what avenues are selected for investment and the returns and risks reviewed,” he said.

“In the event of a market crash, employees were likely to lose all of their savings and even run into losses beyond their contribution without knowing what had hit them,” he said.

Abbas Karjatwala, a senior auditor, agreed with the wider view that no one should have the right to put the entire savings of an employee, which sometimes is the only sum on which he fends for himself and family after retirement, in jeopardy.

He noted that the members of PF committee were not likely to be asset managers.

It was, therefore, exposing the funds to risk, when invested in stocks for medium or long term, but more so if the committee decides to dabble in day trading and speculation.

“The holders of employee funds should be allowed to invest in high risk securities, such as shares only if the employers were willing to underwrite the investment: To distribute profit in case of good returns and to reimburse losses where money invested is eroded,” he said and added that it would not hurt if the employer charged a small amount in management or under-writing fee for such an act.