New Delhi: Retirement fund body EPFO has decided to bring out an exit policy to liquidate its investments in government securities, ETFs and state loans to maximise returns for its members.
The Employees Provident Fund Organisation (EPFO) has no exit policy at present as it largely invests in government securities that have a definite maturity window. The issue was discussed at the recent meeting of EPFO's apex decision-making body, the Central Board of Trustees (CBT), on April 12 where its Chairman and Labour Minister Bandaru Dattatreya had assured the trustees of bringing out an exit policy.
The EPFO is under pressure to offer higher interest rate on EPF to its around 4 crore subscribers. The CBT had decided to provide 8.65 per cent interest on EPF deposits for 2016-17 in December last year. But the finance ministry had not approved the same and asked the EPFO to reduce it by up to 50 basis points to avoid any deficit.
The EPFO had entrusted a Bengaluru-based management institute with the task of framing the exit policy, which is expected to provide a basic blueprint.
"The policy will be vetted by the EPFO's advisory body Finance Audit and Investment Committee (FAIC) at its next meeting expected soon. Thereafter it will be tabled in the CBT for consideration and approval," an EPFO trustee and Bharatiya Mazdoor Sangh leader P J Banasure told PTI.
He said, "In the absence of exit policy, the EPFO has not been able to maximise its returns on its investments. Even in the case of government securities, the EPFO can sell the bonds in open market and earn huge margin before maturity."
He is of the view that there is no point increasing the investments in exchange-traded funds (ETF) unless the EPFO has an exit policy. Citing an example, he said the ETF investment yield was about 14 per cent before demonetisation, which fell to around 8 per cent after the note ban and but recovered to 13 per cent.
Thus, the EPFO has missed the bus to earn 14 per cent on its ETF investments before demonetisation in the absence of an exit policy. Banasure said there was a broad consensus in the CBT that there should be an exit policy for the EPFO before raising investments in the ETF to 15 per cent of the investible deposits, from the current 10 per cent.
He is also of the view that the central body can maximise returns by timely liquidating investments in bonds and state loans depending on market conditions. The EPFO had entered the stock market by investing 5 per cent in August 2015, which was raised to 10 per cent last year.
In view of the volatile nature of stock markets, the EPFO had then decided to start with investing just 5 per cent of its over Rs 1 lakh crore investible amount in ETFs. The EPFO has invested Rs 18,069 crore in ETFs till February 18....