EPFO seeks trustees nod to invest more funds in govt bonds

It is seeking amendment so as to enhance investment in govt securities to 70% from existing 55%

Retirement fund manager EPFO has sought approval of its trustees to invest more funds in government securities, particularly state development loans (SDL) as they offer better returns than corporate bonds.

Employees' Provident Fund Organisation (EPFO) is seeking amendment so as to enhance investment in government securities to 70% from existing 55% of funds, as per the agenda listed for the next meeting of Central Board of Trustees (CBT) scheduled on August 26.

"...For the last six months, it is being witnessed that sovereign bonds particularly the SDLs which have no concern of security are offering better rate of return than many of the corporate instance. This is mainly because there is negligible fresh issuance in corporate market in recent past," EPFO had explained to Labour Ministry in a letter in May this year.

In June, Labour Ministry asked EPFO to submit a proposal seeking changes in the investment pattern after obtaining CBT's approval.

Once approved by the EPFO apex decision making body, the CBT, headed by Labour Minister, the said amendment would be notified by Labour Ministry after due diligence.

After notification of the amendment, EPFO would be able to invest a maximum of 70% and 55% incremental accretions in government securities and debt securities/TDRs respectively.

According to the information available when new investment pattern is notified, there was scope of investing additional 15% of EPFO funds.

While adopting the new pattern of investment, it was decided that there will be no investment in equity as of now and this additional 15% was clubbed with the limit for investment in corporate bonds. Thus the investment limit in corporate bonds was fixed at 55%.

In the letter to the Labour Ministry, EPFO said: "...SDLs with internally no risk factor was offering much better return than PSU bonds. EPFO had to invest in corporate bonds despite the lower return associated with them in order to conform to the patter of investment."

EPFO pointed out, "Even IRDA guidelines for the insurance sector allows investment in government securities up to a maximum of 85% of total investments. This flexibility at hand with organisations like LIC empowers it to make investment in the category which gives better yields."

EPFO manages a corpus of about Rs 6 lakh crore with an active subscriber base of about five crore members.

It had received Rs 71,195 crore as incremental deposits from its subscribers during 2013-14, which was 16% higher than Rs 61,143 crore collected by it in the previous fiscal.