The proposals are aimed toward making certain excessive returns for provident fund subscribers and so they come after the EPFO reduce the rate of interest for 2021-22 to eight.10%, the bottom in 4 many years.
“In our upcoming assembly, we are going to talk about a proposal of fungibility that ought to enable fund managers to speculate extra in larger yielding authorities bonds as an alternative of the obligatory company bonds,” Prabhakar Banasure, a member of EPFO’s central board of trustees, advised ET.
The retirement fund physique’s investments in company bonds are within the debt of top-rated, primarily state-run, corporations. These are yielding as a lot as 64 foundation factors, or 0.64 share level, decrease than state authorities securities.
The Finance Funding and Audit Committee of the retirement fund physique is prone to meet on Tuesday.
Banasure mentioned he would additionally suggest to lift the higher funding restrict for equities to 25%. Presently, the EPFO invests between 5% and 15% within the fairness market via exchange-traded funds.
“EPFO has earned almost 14% returns from fairness investments to date in 2021-22,” he mentioned.
This achieve is considerably larger in contrast with the returns from debt investments.
Final week, the EPFO invested Rs 3,675 crore in Nuclear Energy Corp bonds, which provided 6.89% for 15 years.
Comparable-maturity central authorities bonds yielded about 7.27% annualised on March 23, the day the EPFO made the funding. A day earlier, the Haryana authorities provided a 7.53% annualised yield because it raised 15-year cash by way of bonds.
The EPFO invests solely via the first market. The final bond sale from the central authorities was on February 4 and it isn’t scheduled to promote any extra till the top of the fiscal 12 months. State governments, nonetheless, proceed to promote papers by way of Reserve Financial institution of India auctions. The EPFO will get common deposits, and it can’t sit idle on money.
The EPFO possible invested a minimum of Rs 10,000 crore in top-rated public-sector firm bonds together with Indian Oil Corp, Hindustan Petroleum Corp and Nationwide Financial institution for Agriculture and Rural Improvement, a few of which have provided charges as much as 9 foundation factors lower than similar-maturity authorities bonds, ET reported on March 2.
“For this (low-yielding company bonds), the EPFO is struggling losses,” mentioned Banasure.
“Fund managers of the EPFO are to not be blamed as they must be compliant with the EPFO funding sample,” mentioned Ajay Manglunia, managing director and head of debt capital market at JM Monetary. “The Central Board of Trustees ought to give flexibility to fund managers, who can handle it higher, particularly if there are sufficient alternatives to earn larger yields.”
The EPFO can make investments 45-70% of the member deposits in authorities securities, together with central and state authorities bonds. After the funding in equities, there’s a minimal of 20% funding area for company bonds.
“EPFO’s goal must be to maximise funding returns, significantly when our members have suffered a straight 40-basis-point reduce within the fee (which was reduce to eight.1% from 8.5%),” mentioned Banasure.
The whole corpus of the EPFO was Rs 15.69 lakh crore (greater than $209 billion) on the finish of March 2021, in keeping with newest out there knowledge. When it comes to asset measurement, it ranks eighth amongst sovereign pension funds and thirty third amongst prime asset house owners of the world.