EPFO investment policy overhaul:
PF body set to introduce performance-linked incentives for fund managers, may invest in emerging sectors, says report
Feb 23, 2026
Synopsis
The Employees Provident Fund Organisation is considering new investment avenues. These include emerging sectors like rare earths, railways, and defence. The organisation also plans to introduce performance-linked incentives for its fund managers.
With an aim to produce significantly higher annual returns for its members than prevailing yields on govt bonds, Employees Provident Fund Organisation (EPFO) may soon start investing in emerging, sunrise sectors such as rare earths, railways and defence, along with examining yields of sectoral, factor and style-based indices, as per a Times of India (ToI) report.
Besides it, EPFO’s investment committee has also approved the proposal to introduce performance-linked incentives for its fund managers, wherein the provident fund body would allocate greater funds to those who give better returns, as part of the new benchmark methodology for its debt investments, the report claims.
These are some of the ideas that may come into effect as EPFO is likely to constitute a high-powered committee to study its investment objectives, policy and guidelines, the ToI report says.
As per the report, the panel, a proposal for which came from a govt representative, will have experts from multiple fields and govt departments.
Issues of investing in new sectors and providing performance-linked incentives to fund managers were discussed at an EPFO investment committee meeting last week, which was weighing the feasibility of investing in equity markets beyond exchange traded funds (ETFs), tracking the benchmark such as the NSE Nifty and BSE sensex indices, says the report.
What are performance-linked incentives to fund managers?
The investment committee reportedly approved the proposal to introduce performance-linked incentives for its fund managers, wherein it would allocate greater funds to those who give better returns, as part of the new benchmark methodology for its debt investments.
"The new benchmark methodology includes an accelerated negative marking provision for any fund manager who fails to meet it, which will adversely affect its portfolio allocation. The new methodology also discourages the fund managers from parking funds in low-yielding TREPS which are basically short-term, low-risk money market instruments," the ToI report says, quoting sources.
Crisil presented possibility of investing in merging sectors
In the investment committee meeting, Crisil, which is a consultant with EPFO, presented the feasibility of investing in emerging, sunrise sectors such as rare earths, railways and defence, along with examining yields of sectoral, factor and style-based indices.
Some of the possible sectoral indices included those tracking banking and financial services, information technology, global indices and FMCG. It also assessed indices that track momentum stocks, value stocks and low-volatility stocks, says the report.
The retirement fund body is at work to increase its income as it is announcing significantly higher annual returns for its members than prevailing yields on govt bonds in recent years, where most of its funds are parked. It is set to announce the interest rate for the current financial year next month.
[The Economic Times]
