Finance Minister Pranab Mukharjee had announced setting up of the fund in his 2010-11 Budget speech.
The constitution of the fund, which was cleared by the Union Cabinet today, will support social security schemes for various segments of unorganised workers like weavers, toddy tappers, rickshaw pullers, beedi workers etc.
Most of these workers do not have social security cover in the form of life or disability insurance, health care and pensions.
"The fund will also facilitate evolution and funding of schemes by various departments which are currently involved in welfare of these segment of workers," an official statement said.
The Labour and Employment Ministry will be the nodal ministry for operation of the fund.
Figures state there are at present 94 per cent of the workforce in the country in the unorganised sector.
Recognising the need for providing social security to the workers and as a follow up to the Unorganised Workers` Social Security Act, 2008, the Finance Ministry in his budget speech for 2010-11 had announced setting up the security fund.