The proposals aim to guarantee high returns to provident fund subscribers and they come after the EPFO cut the interest rate for 2021-22 to 8.10%, the lowest in four decades.
“At our next meeting, we will discuss a fungibility proposal which should allow fund managers to invest more in higher yielding government bonds instead of corporate bonds,” ET told Prabhakar Banasure, member of EPFO’s central board.
The pension fund body’s investments in corporate bonds are in blue-chip, mostly state-run corporate debt. These fetch up to 64 basis points, or 0.64 percentage points, less than government securities.
The Finance, Investment and Audit committee of the pension fund should meet on Tuesday.
Banasure said it would also propose raising the upper investment limit for stocks to 25%. Currently, EPFO invests between 5% and 15% in the equity market through exchange-traded funds.
“EPFO has achieved almost 14% return on its equity investments so far in 2021-22,” he said.
This gain is significantly higher compared to returns from debt investments.
EPFO last week invested Rs 3,675 crore in Nuclear Power Corp bonds, which offered 6.89% over 15 years.
Central government bonds of similar maturity returned around 7.27% annualized on March 23, the day the EPFO made the investment. A day earlier, the Haryana government offered an annualized return of 7.53% by raising funds over 15 years via bonds.
EPFO only invests through the primary market. The last sale of central government bonds took place on February 4 and there are no plans to sell more before the end of the financial year. State governments, however, continue to sell papers through Reserve Bank of India auctions. EPFO receives regular deposits and cannot sit idle with money.
The EPFO has probably invested at least Rs 10,000 crore in blue chip public sector corporate bonds including Indian Oil Corp, Hindustan Petroleum Corp and the National Bank for Agriculture and Rural Development, some of which have offered rates up to nine basis points lower than similar rates. maturing government bonds, ET said on March 2.
“For this (low-yielding corporate bonds), the EPFO suffers losses,” Banasure said.
“EPFO fund managers should not be blamed as they have to conform to the EPFO investment model,” said Ajay Manglunia, Managing Director and Head of Debt Capital Markets at JM Financial. “The central board should give flexibility to fund managers, who can manage it better, especially if there are enough opportunities to get higher returns.”
EPFO can invest 45-70% of members’ deposits in government securities, including government and government bonds. After investing in stocks, there remains at least 20% investment space for corporate bonds.
“EPFO’s objective should be to maximize returns on investment, particularly when our members suffered a consecutive 40 basis point drop in the rate (which was reduced to 8.1% from 8.5%) “Banasure said.
EPFO’s total corpus was Rs 15.69 lakh crore (over $209 billion) at the end of March 2021, according to the latest available data. In terms of asset size, it ranks eighth among sovereign pension funds and 33rd among the world’s largest asset owners.
