New Delhi, March 29, 2017
Making a departure from its earlier practice of parking all of its daily subscription receipts, around R356 crore a day, in Collateralised Borrowing & Lending Obligation (CBLO), Employees’ Provident Fund Organisation (EPFO) will soon start part-investing them in liquid mutual funds (LMFs) also, aimed at generating better returns for its subscribers. The finance audit and investment committee (FAIC) of the retirement fund body, which has an annual incremental deposits of around R1,30,000 crore, has already given its go ahead to the proposal which would now be placed before EPFO’s highest decision-making body Central Board of Trustees (CBT) in its schedule meeting on March 30.
The FAIC has approved parking up the liquid fund to the LMFs for a maximum period of 30 days, but sources in the retirement fund body said that it would like to park them up for a maximum of 3-5 days before the sum is invested in various instruments as per the approved investment pattern. (see chart) “Our intention is to maximise returns. It is expected that short-term investments in LMFs would yield even better returns than CBLO, the traditional money market instrument. Even 0.5% higher return would mean a lot for us,” said a senior EPFO official.
Investment in the LMFs would be done on daily basis, but the ratio of investment between CBLO and LMFs would be decided by the portfolio managers. Liquid funds come with different plans like growth plans, daily dividend plans, weekly dividend plans and monthly dividend plants. In line with the falling interest rate regime, EPFO pruned the interest rate on provident fund deposits for its over 17 crore subscribers to 8.65% for 2016-17, the lowest in four years, even as it continues to be the most preferable fixed income instrument over all other debt instruments including PPF, senior citizen savings scheme and bank deposits.
The widening of the window for parking funds on short-term basis was thus extremely important for EPFO as it was under tremendous pressure to maximise its returns since its return on investments is lower than what its investments bring in return.
Meanwhile, enthused by higher returns, EPFO is likely to enhance its stock market exposure to 15% of its incremental deposits, or an estimated R19,500 crore, in FY18, from 10% now. The increase will be via the ETF route. A decision on this front is also likely to be taken in the forthcoming meeting of the CBT. EPFO has invested R18,609 crore in ETFs till February, 2017 and its returns on equity investments stand at above 18% in 2016-17.
[The Financial Express]