EPFO turns wary after NBFC crisis, to keep away from corporate bonds

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Updated: August 23, 2019 6:56:47 AM

The EPFO is seeking early redemption of about Rs 700 crore worth of bonds of DHFL to safeguard the savings of workers. Its exposure to IL&FS debentures is Rs 574 crore. The EPF has more than 6 crore active members.

NBFC crisis, EPFO, corporate bonds, economy news, DHFL, ilfs, pension, ilfs news, ilfs scam, ilfs crisisThe retirement body had invested about Rs 2.66 lakh crore or 31% of its total investment in debt instruments in bonds of public sector and private sector firms as on March 31, 2017.

The Employees’ Provident Fund Organisation (EPFO) has decided to withhold any further investments in private-corporate bonds and “compulsorily consider” one of the two required ratings for investments in PSU bonds. As the problems of asset-liability mismatch and liquidity crunch in the shadow banking space are yet to be blown over, the EPFO may also redeem the bonds held of the troubled Dewan Housing Finance Corporation (DHFL) soon and nominate officers to attend the IL&FS debenture-holders’ meeting to be held shortly, in the wake of coupon default.

The EPFO is seeking early redemption of about Rs 700 crore worth of bonds of DHFL to safeguard the savings of workers. Its exposure to IL&FS debentures is Rs 574 crore. The EPF has more than 6 crore active members.

The retirement body had invested about Rs 2.66 lakh crore or 31% of its total investment in debt instruments in bonds of public sector and private sector firms as on March 31, 2017. As per the changed investment pattern notified in April 2015, the retirement fund body can invest up to 15% of its annual incremental deposits in the equity market. In the first year when it started putting money in equities, the EPFO invested 5% of its incremental deposits in ETFs and doubled it to 10% in the subsequent year. The CBT enhanced the limit to 15% in FY18.

Equity investments via ETFs fetched 21.9% annual return, much higher than 7.1% from corporate bonds during August 2015 and October 2017. For FY19, the EPFO had raised the interest rate on provident fund deposits to 8.65%, a 10 bps increase from the previous year.
The EPFO has more than 6 crore active members.

The Central Board of Trustees (CBT) of the EPFO, which met in Hyderabad on Wednesday, also decided to restore commutation, or advance part-withdrawal, under the Employees’ Pension Scheme. The restoration of commuted value of pension to the pensioners after 15 years of drawing commutation would benefit approximately 6.3 lakhs pensioners, the EPFO said in a statement.

Moreover, the trustees approved the decision to choose the exchange-traded fund (ETF) manufacturers through public bidding by October 31, 2019, and extended the term of the present ETF manufacturers (SBI MF and UTI MF) till then. With regard to allocation of investment in Nifty 50 and Sensex, the CBT approved the proposal to divide the fund allocation equally (in the ratio of 50:50) between Nifty 50 and Sensex ETFs.

 

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