With an eye on bettering returns on provident fund deposits, the EPFO is planning to further broaden its investment basket.
On the table are proposals to increase the cap on equity investments to 5-20 per cent cent as well as invest in new asset classes such as listed debt an bonds issued by InvITs and REITs as well as investment in securities that are fully guaranteed by State governments
The proposals, based on the recommendations of the Finance Investment and Audit Committee, will be taken up at the upcoming meeting of the EPFO’s Central Board of Trustees (CBT) later this week.
“Globally, pension and provident funds invest a lot more of their funds in equities. EPFO also needs to look into this. We need to ensure that we provide a better rate of interest but at the same time also protect the interest of the depositors. What we do as investment now will reap benefits in the next three to five years of time and it is very important we make a balanced move with caution and with experience. No good investment opportunity should be lost. We will discuss more in the upcoming CBT meeting on this,” said a source close to the development.
Under the current investment pattern, the EPFO invests 85 per cent of its fresh accretion in debt instruments and 15 per cent in equity.
According to another source, past investments of debt funds with the returns higher than 9 per cent are maturing while re-investments give less than 8 per cent returns.
“This is leading to stress on the rate of interest that EPFO declares as returns from debt investments are on a declining trend,” the second source said, while noting that the reinvestment of these maturities as well as fresh investments in debt securities are yielding interest rate in the range of 6.5 per cent to 7.5 per cent.
The EPFO declared an interest rate of 8.1 per cent for the fiscal year 2021-22, which was the lowest in four decades.
Inclusion of InvITs and REITs
Meanwhile, the CBT is also expected to take up a proposal for inclusion of debts and bonds issued by InvITs and REITs in the category of debt investments. Listed or proposed to be listed debt securities issued by InvITs and REITS engaged in construction and infrastructure may be considered for investment by the EPFO subject to a maximum of three per cent of the total AUM of the fund at any point of time. Investments would be made in securities which have a AAA rating by atleast two rating firms and the entire assets provided by the sponsor for the InvIT or REIT is fully operational are some of the other conditions.
As part of its investments in government securities, the CBT is also likely to take up a proposal to include other securities that are guaranteed by any State government. The revision in the investment norms has been approved by the FIAC, which has suggested that the EPFO’s portfolio managers can invest in securities where the principle and interest is fully and unconditionally guaranteed by a State government and the cumulative investment is not over 10 per cent of the total portfolio of the fund.