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The Employees Provident Fund Organisation (EPFO) may rely only on public sector bank-owned mutual funds to manage its fund this fiscal.
Some of the investments made by private sector portfolio managers last year in the debt instruments of IL&FS, DHFL and Reliance Capital led to huge losses.
Late last month, the EPFO called for bids from financial institutions to act as portfolio managers and it is in the process of finalising the list.
The newly appointed portfolio managers would have the responsibility and discretion to invest the incremental accruals to the EPFO corpus. In addition, they could also be allocated a portion of the corpus from the existing portfolio of the EPFO as is managed by the current portfolio manager.
Lowest fee criteria
In FY19, SBI Mutual Fund, Reliance Mutual Fund, HSBC Asset Management Company, ICICI Securities Primary Dealership and UTI Asset Management Company were the fund managers of the EPFO.
The EPFO has a corpus of about ₹11 lakh-crore and has an annual accrual of over ₹1 lakh crore from over six crore subscribers. The institution that quotes the lowest fee will be selected to manage a portion of the incremental inflows.
The fund management fee to be paid by the EPFO will be lower this year with some of its investments going bad last year.
The EPFO has also announced a rise in interest paid to its subscribers for the first time in three years. The interest rate has been increased to 8.65 per cent for FY19 from 8.55 per cent paid in FY18.
Investments made by EPFO’s portfolio managers last year in debt instruments and securities of their own group companies have gone bad. Currently, the EPFO is left with an exposure of ₹575 crore towards IL&FS and about ₹2,500 crore towards Anil Dhirubhai Ambani Group companies. Out of the ₹2,500-crore exposure to Anil Ambani group companies, about ₹500 crore have been invested in the securities of Reliance Capital (RCap).
Last month, rating agency CARE downgraded Reliance Capital’s debt securities to ‘BBB’ from ‘A’ , citing defaults by two of its subsidiaries — Reliance Home Finance and Reliance Commercial Finance.
The EPFO is not allowed to deploy its corpus in any corporate bonds rated below AA+.
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