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


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…

New money laundering norms stump jewellery sector

New money laundering norms stump jewellery sector Dealers with turnover of Rs 2 crore and above covered; industry says threshold too low The central government has notified the money laundering rules for the gems and jewellery sector with immediate effect. Now, any entity deals in precious metals, precious stones, or other high-value goods and has a turnover of Rs 2 crore or more in a financial year will be covered under the Prevention of Money Laundering Act, 2002 (PMLA, 2002). The limit of Rs 2 crore would be calculated on the basis of the previous year’s turnover, said the notification. The directorate general of goods and service tax intelligence has been appointed under the Act. Sources said the government’s move to apply the PMLA to the jewellery sector was a fallout of income-tax raids on jewellers soon after demonetisation last November, when it was found that they sold gold and jewellery at a huge premium and accepted old currency notes as payment. The notification, issued on Augus…

Confusion over branded food GST

Confusion over branded food GST The GST Council's statement over the weekend on applying tax on branded food items has left most of the trade confused.

Even though the Council has not changed the rates on food -0 per cent on unbranded stuff and 5 per cent on brands -many small traders who didn't levy GST earlier said they could come under the 5 per cent slab after the clarification.

While they predicted some increase in consumer prices, large players said they can absorb GST in many ways and keep prices steady.

"Trade is confused and hence on behalf of our chamber, we have asked our members to go ahead and charge 5 per cent GST," said Sushil Sureka, general secretary of the Ahilya Chamber of Commerce and Industry in Indore.

The statement clarifying the application of GST came after some businesses were found deregistering their brands and selling under corporate brand name without paying tax, after the Council exempted unbranded food from the new all-encompassing indirec…