EPFO to invest more in G-Secs for infra development: Dattatreya
Retirement fund body EPFO will park more funds in public sector bonds to boost government's infrastructure development programmes and continue to invest in equities, Union Labour Minister Bandaru Dattatreya said.
The proposal to change the investment pattern for increasing Employees' Provident Fund Organisation's (EPFO) investments in government securities (G-Secs) or government guaranteed bonds to 65 per cent from existing 50 per cent is expected to be vetted by its trustees in a meeting scheduled on Tuesday.
"Equity participation will continue. We have taken a decision that in public sector bonds, we will invest up to 65 per cent. All other things (investment or remaining 35 per cent of investments) will go into private bonds, equity," Dattatreya said.
The minister said, "Seeing the prevailing conditions and strengthening more infrastructure activities of the government then...they are going to give same interest rate...so we prefer to go for public sector investment."
The EPFO is also in talks with Ministry of Road, Transport and Highways for investing Rs 50,000 crore in their projects under engineering procurement and construction (EPC) model, which are fully funded by the government. However, a decision in this regard could not be taken because EPFO has been asking for rate of return on the bonds which commensurates with the interest rate of 8.75 per cent being provided to its subscribers. There were apprehensions that the Labour Ministry will rollback the decision to invest part of EPFO's annual incremental investments in stock markets in view of negative returns on such investments.
Recently, an EPFO analysis revealed that the body earned a negative return of 9.54 per cent on its Rs 5,920-crore investment in ETFs since August 2015. Market value of investments of Rs 5,920 crore in the ETFs this fiscal was Rs 5,355 crore on February 29, 2016, as per an analysis of equity investment by EPFO.
The finance ministry had notified a new investment pattern for private provident funds, including EPFO, which provided that these funds can invest a minimum of 5 per cent and a maximum of 15 per cent of investible deposits in equity or equity-related schemes.
Following this, the EPFO's apex decision making body the Central Board of Trustees (CBT) headed by the Labour Minister approved the new investment pattern, paving the way for parking its funds in stock markets. However, taking baby steps, EPFO decided to invest only 5 per cent of its investible deposits in the current fiscal in exchange-traded funds (ETFs) which are considered as a more safe bet than pure equity investments.