Seeking to maximize returns, the EPFO (Employee’s Provident Fund Organization) is expected to resume investing in corporate bonds issued by private sector companies, after a hiatus of more than two years.
Under the current investment model, EPFO can invest up to 20% of its annual additional deposits – around Rs 36,000 crore at present – in corporate bonds. But in recent years, investments have been limited to public sector corporate bonds.
Options such as when to invest in private sector bonds and when and how to exit those investments were discussed at the meeting of the Investments and Pension Funds Audit Committee (FIAC) on Wednesday.
“No concrete decision has been made today. We have been discussing the matter for the last two meetings and today we have extended this discussion and deliberated from different angles of risk versus gain and on aspects of these investments,” said KE Raghunathan, a member of FIAC and also a member of the Central Board of Trustees (CBT), EPFO’s highest decision-making body and headed by the Union Labor Minister. certain major defaults occurred in private sector bonds, the BCT limited investments in private sector bonds until further orders at its 225th meeting held on August 21, 2019.
However, considering the development since the investment restrictions in certain asset classes imposed by the BCT, the EPFO asked the portfolio managers, including SBI MF, to provide their views, comments and strategies. return enhancement through investments in various asset classes that are part of the investment model, with due emphasis on no or minimal risk.
Accordingly, SBI MF suggested selective investments in private sector bonds, placing excess liquidity in liquid funds, investing in Basel III Tier-I bonds from the largest bank and InvIT PSUs, among others. Crisil’s views were also taken.
The CBT had decided in November to empower FIAC to take a call to invest in new asset classes such as InvIT. It also empowered FIAC to decide on investment options, on a case-by-case basis, for investment in all those asset classes that are included in the investment scheme as notified by the central government.
Raghunathan said serious discussions also took place when designing the exit policy for these investments during the meeting. As of September 30 last year, the EPFO had invested around Rs 11,000 crore in corporate bonds where the issuers either defaulted on paying the bonds in principal and interest or the securities were downgraded.