The CBT had in November decided to empower the FIAC to take a call on in
Looking to maximise yields, the Employees’ Provident Fund Organisation (EPFO) is likely to start investing again in corporate bonds issued by private sector companies, after a gap of over two years.
As per the current investment pattern, the EPFO can invest up to 20% of its annual incremental deposits — around Rs 36,000 crore at present — in corporate bonds. But the investments have in recent years been restricted to bonds of public sector companies.
Options like when to invest in private-sector bonds and when and how to exit from such investments were discussed at the retirement fund body’s Finance Investment and Audit Committee (FIAC) meeting on Wednesday.
“No concrete decision has been taken today. We have been discussing the issue since last couple of meetings and today, we extended that discussion and deliberated from various angles of risk versus gain and on aspects of such investments,” said KE Raghunathan, a FIAC member and also a member of the Central Board of Trustees (CBT), the highest decision-making body of the EPFO and headed by the Union labour minister. Consequent to certain major defaults which occurred in private sector bonds, the CBT restricted investment in private sector bonds till further orders in its 225th meeting held on August 21, 2019.
However, considering the developments since the restrictions on investments in certain asset classes were placed by the CBT, the EPFO asked portfolio managers including SBI MF to provide their views, comments and strategies for yield enhancement through investments in diverse asset classes which are part of the pattern of investment, with due emphasis on no risk or minimal risk.
Accordingly, SBI MF suggested selective investments private sector bonds, parking surplus liquidity in liquid funds, investing in top bank’s Basel III Tier–I bonds and in PSU InvITs among others. Crisil’s views were also taken.
The CBT had in November decided to empower the FIAC to take a call on investing in new asset classes like InvITs. It also empowered the FIAC to decide upon the investment options, on case-to-case basis, for investment in all such asset classes which are included in the pattern of investment as notified by central government.
Raghunathan said a serious amount of discussion took place also in devising the exit policy of such investments during the course of the meeting. As on September 30 last year, the EPFO had around Rs 11,000-crore investments into corporate bonds where the issuers either defaulted on paying principal and interest obligations or the securities have been downgraded.
