Rule 292 — Investment of fund moneys.
Sub-rule (1) directs how the moneys of a provident fund are to be invested. All contributions, whether made by the employer or the employees, or transferred from an individual account of the employee in a recognized provident fund maintained by a former employer, or accrued as interest or otherwise, are to be invested in the instruments in column 2 of the Table, subject to the percentages in column 3. The Table has five entries: Government Securities and Related Investments, minimum 45%; Debt Instruments and Related Investments, minimum 35%; Short-term Debt Instruments and Related Investments, up to 5%; Equities and Related Investments, minimum 5%; and Asset Backed, Trust Structured and Miscellaneous Investments, up to 5%.
Sub-rule (2) does not define those categories itself. They take their respective meanings as specified in notification number S.O. 1433(E) dated the 29th of May, 2015 issued by the Ministry of Labour and Employment, as amended from time to time, and the investments are subject to the conditions specified in that notification.
Sub-rule (3) provides for money not invested in that manner: it may be deposited in a Post Office Savings Bank Account in India, or in a current account or Savings Bank Account with any scheduled bank. Sub-rule (4) supplies the working definitions: "Government securities" has the meaning in section 2(f) of the Government Securities Act, 2006; the manner of investment in sub-rule (1) applies to the aggregate amount of moneys with the fund in the tax year; moneys received on transfer, maturity or realisation of any security or deposit forming part of a fund, or by withdrawal from any account in a bank including a Post Office Savings Bank Account, are deemed to be moneys accruing to the fund; and "scheduled bank" means the State Bank of India, a subsidiary bank under the State Bank of India (Subsidiary Banks) Act, 1959, a corresponding new bank under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or 1980, or any other bank included in the Second Schedule to the Reserve Bank of India Act, 1934.
A recognised provident fund holds employees' retirement savings, and the tax recognition it enjoys cannot be extended to a fund that invests those savings as it pleases. The rule therefore prescribes a pattern rather than a list of permitted securities, weighted towards Government securities and debt with a small allocation to equities and structured products. Rather than draft its own definitions of the five classes, sub-rule (2) adopts the Ministry of Labour and Employment's notification as amended from time to time, so the tax rule tracks the labour-side investment pattern instead of diverging from it.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Government Securities and Related Investments | Minimum 45% | A floor, applied to the aggregate amount of moneys with the fund in the tax year | Rule 292(1), Table Sl. No. 1 |
| Debt Instruments and Related Investments | Minimum 35% | A floor, applied to the aggregate amount of moneys with the fund in the tax year | Rule 292(1), Table Sl. No. 2 |
| Short-term Debt Instruments and Related Investments | Up to 5% | A ceiling, not an allocation the fund must make | Rule 292(1), Table Sl. No. 3 |
| Equities and Related Investments | Minimum 5% | A floor, applied to the aggregate amount of moneys with the fund in the tax year | Rule 292(1), Table Sl. No. 4 |
| Asset Backed, Trust Structured and Miscellaneous Investments | Up to 5% | A ceiling, not an allocation the fund must make | Rule 292(1), Table Sl. No. 5 |
Column 3 mixes two kinds of limit and they must not be read alike. Entries 1, 2 and 4 are minimums, so the fund has to reach them; entries 3 and 5 are ceilings expressed as "up to 5%", which permit an allocation and do not require one. The pattern is tested against the aggregate amount of moneys with the fund in the tax year under sub-rule (4)(b), not against each contribution as it comes in, and the aggregate is wider than fresh contributions because sub-rule (4)(c) deems moneys received on transfer, maturity or realisation of a security or deposit, or withdrawn from a bank account, to be moneys accruing to the fund and therefore to be reinvested in the same pattern. What the five classes contain is not in the rule at all: sub-rule (2) sends the reader to notification S.O. 1433(E) dated the 29th of May, 2015 of the Ministry of Labour and Employment, as amended from time to time, and the conditions in that notification apply as well. Sub-rule (3) is a holding provision for money not invested in the prescribed manner, and the two destinations it allows are narrow — a Post Office Savings Bank Account in India, or a current or savings account with a scheduled bank as defined in sub-rule (4)(d).
A provident fund holds an aggregate of Rs. 100 crore of moneys in a tax year, including Rs. 8 crore received on maturity of a security, which sub-rule (4)(c) treats as accruing to the fund. At least Rs. 45 crore must be in Government Securities and Related Investments, at least Rs. 35 crore in Debt Instruments and Related Investments and at least Rs. 5 crore in Equities and Related Investments. It may put up to Rs. 5 crore in Short-term Debt Instruments and up to Rs. 5 crore in Asset Backed, Trust Structured and Miscellaneous Investments, but is not obliged to invest anything in either. Money awaiting investment sits in a Post Office Savings Bank Account or an account with a scheduled bank.
An employee never meets this rule; the fund's trustees do, in the investment pattern their annual accounts have to show, and it comes up when the recognition of the fund is examined.
shall be invested in the instruments given in column 2 of the following Table subject to the percentages given in column 3 thereof
the manner of investment specified in sub-rule (1) shall apply to the aggregate amount of moneys with the fund in the tax year
