The first investment, announced by Labour Minister Bandaru Dattatreya in the presence of top market participants, would be made through SBI Mutual Fund's two index linked ETFs -- one to the BSE's Sensex and the other to NSE's Nifty.
The minister said Employment Provident Fund Organisation (EPFO) will initially put only 5 per cent of its incremental fund flow, which would be around Rs 5,000 crore (Rs 50 billion), but the cap could be increased to 15 per cent next year.
The return from the ETF investment will be more than the 8.75 per cent the EPFO offers to subscribers now, he said.
There are mixed views on investing employees' hard-earned money in stocks.
BSE chief Ashish Kumar Chauhan said that investment of pension funds in stock markets is an internationally accepted practice and citizens world over have got better returns from such investments.
NSE chief Chitra Ramkrishna said EPFO's entry will unlock savings into nation building and other entities may consider similar initiatives.
While experts say it is a step in the right direction, some employee unions feel that it is risky to test the volatile markets with PF funds.
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