EPFO MANAGERS FLAG CORPORATE BOND SHORTAGE

The portfolio managers of the Employees’ Provident Fund Organisation (EPFO) have raised concerns over the inadequate supply of corporate bonds in the market that could lead the organisation to deviate from its investment pattern.

“The portfolio managers, during a performance review meeting, had expressed the concern that at times there are inadequate corporate issuances (in debt and related instruments),” the EPFO said in a recent communiqué.

The EPFO should invest at least 35-45 per cent of its yearly income in corporate bonds. The portfolio managers had informed the EPFO that the interest rate offered in the corporate bond segment was either on a par or at times lower than state development loans.

“As it is mandated to invest at least 35 per cent of the EPFO’s incremental corpus in corporate bonds, we are unable to optimise the returns on investment,” a portfolio manager said.

“In less than two months of the remaining financial year, the investment pattern is to be achieved. The portfolio managers had said that it would be very difficult for them to adhere to the investment pattern,” the EPFO said.

The labour and employment ministry had in September 2016 allowed the EPFO to invest up to 65 per cent of its incremental corpus in government securities, up from a ceiling of 50 per cent earlier. However, the portfolio managers said the exposure in corporate bonds was not subsequently reduced.

The labour and employment ministry has now asked the finance ministry to allow the EPFO to increase its maximum share of investments in government securities from 65 per cent. “We have reached the maximum limit for investment in government securities that yield a rate of return of around 8 per cent. Since there is a limited supply of bonds issued by listed companies, we have asked for changes in the investment pattern,” a senior labour and employment ministry official said.

The issue will also be discussed in the EPFO’s central board of trustees’ meeting to be chaired by Labour and Employment Minister Santosh Gangwar on February 21.

In 2017-18, the EPFO is estimated to have received ~1.28 trillion as contribution from employees, a sum that is invested in various instruments, according to the investment pattern notified by the labour and employment ministry in April 2015. Apart from corporate bonds and government securities, the EPFO is mandated to invest up to 5 per cent of its incremental corpus in short-term debt instruments, 5-15 per cent in equity and related instruments and up to 5 per cent in asset-backed, trust

structured and other investments.

The EPFO has five portfolio managers at present — State Bank of India, ICICI Securities Primary

Dealership, Reliance Capital Asset Management, HSBC Asset Management and UTI Asset Management.