Skip to main content

EPFO sells a portion of equity to maintain 8.65% interest rate

EPFO sells a portion of equity to maintain 8.65% interest rate
EPFO has encashed its first tranche of equity investments it made in 2015 and made capital gain, including dividends, of Rs1,053.75 crore
India’s retirement fund manager, the Employees Provident Fund Organization (EPFO), has booked a profit of over Rs1,000 crore by selling some of its equity investments to maintain interest rate at the same level as last fiscal, said two officials in the know.The move, which comes ahead of its annual interest rate declaration, may help EPFO offset relatively low returns from debt investments this year, two officials aware of the matter said.
If EPFO pays 8.65% this year, the same as last fiscal, it will be considered a net positive for subscribers in the current market situation, especially when other PF and small saving rates including Public Provident Fund (PPF) and Government Provident Fund (GPF) rates are going down.PPF and GPF earned 7.6% rate in the current quarter.
“The organization has encashed its first tranche of equity investments it made in 2015. Along with the dividends it received in 2017, its capital gain from equity sale has come to Rs1,053.75 crore,” said Prabhakar Banasure, EPFO’s investment finance committee member, one of the two people mentioned earlier
Of this, Rs771 crore profit has come from selling a portion of its equity holdings in exchange traded funds that mimic Nifty, and Rs241 crore from the Sensex ETFs.“The general sentiment is EPFO should not pay less than 8.65% interest rate in 2017-18. But the debt investments including government bonds have given a lower yield this fiscal. The equity gains that EPFO has made will be utilized to buffer the shortfall,” said the second official mentioned above, on the condition of anonymity.
This fiscal year, EPFO is investing 85% of its annual accruals in the debt market and 15% in equities through exchange-traded funds (ETFs).In 2016-17, its debt market exposure was 90%. Besides government debt securities, it also invests in corporate bonds and bank fixed deposits.The second official said as government bond yields earned an interest of between 6.5% to 7.75% in 2017, it created the need for encashing portion of ETFs.
For example, Axis Bank raised Rs5,000 crore through a sale of Basel-III compliant bonds to EPFO at a coupon rate of 7.66%, Mint reported on 15 June. Axis Bank then said that this is the “lowest coupon rate so far on the Tier-II bonds of any private sector bank”.To be sure, the final earnings are being calculated and the Central Board of Trustees of the EPFO headed by the labour minister will take a final call and announce the interest rate next week.
Banasure said that since EPFO went to stock market to improve its earnings, lowering the interest rate will be criticized. The stock market has gained significantly over the last two-and-a-half years, and the overall equity investments of EPFO were estimated to have gained 16% by the end of January. He said though it had decided a few months back to allocate ETF units to subscribers’ accounts, the equity sale was that of the 2015 investments, when no such policy was in place.
EPFO started investing in equity in August 2015 and by January, it had invested over Rs44,000 crore in equity through ETFs. Overall, EPFO manages a corpus of Rs11 trillion and has an active subscriber base of over 50 million.
The Business Standard, New Delhi, 13th February 2018

Comments

Popular posts from this blog

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

RBI rushes in to prop up falling rupee

RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…