The Employees’ Provident Fund Organisation (EPFO) has extended the term of SBI Mutual Fund to manage its investment in the exchange traded funds (ETFs) for three months till June 30, sources in the retirement fund body said.

Following the government’s approval, EPFO starts investing 5% of its incremental deposits in ETFs from last financial year. SBI Mutual Fund was appointed as the “ETF manufacturer” for the 2015-16 financial year. The term ended with the end of the financial year on March 30.

Meanwhile, during the seven-month time of SBI Mutual Fund’s appointment till February-end, the market value of EPFO’s `5,920-crore investment got eroded by 9.54% to stand at Rs 5,355 crore. The investment in Nifty and Sensex has been in the ratio of 70.05:25.95. EPFO started investing in the market on August 5, 2015.

“The performance of SBI Mutual Fund was not up to the mark. Hence, a section of the Central Board of Trustees (CBT) felt that a new fund house should be brought in while others blamed the poor market conditions for the not-so-satisfactory performance of the company,” a source said. CBT is EPFO’s highest decision-making body.

Considering that the selection of an asset management company (AMC) for a fresh term would require some time, it was decided that SBI Mutual Fund would be given extension for three months, he added.

However, it was not clear whether SBI Mutual Fund would be allowed to submit request for proposal (RFP) at the time of inviting bids from AMCs to manage the corpus for the current fiscal. During the extension period, SBI Mutual Fund would charge the same fees — 0.07% per annum — on net assets.

The issue of appointing an AMC was discussed in the EPFO’s finance investment and audit committee (FIAC) meeting in January where it was decided that a three-member committee to be formed for selecting a mutual fund house as ETF manufacturer for the current financial year. Crisil was appointed to assist the committee in the selection.

The committee, he said, has been mandated to prepare and approve RFP document for selection of an AMC. It would also undertake the entire process of evaluation of RFP, technical and financial bids and select a mutual fund house as ETF manufacturer. The committee will recommend the selected entity to the CBT.

EPFO’s investment in ETF (in Rs crore)

Total investment since August 5, 2015
5,920

Market value as on February 29, 2016
5,355

Absolute return of scheme
-9.54%