EPFO is expected to receive about Rs 1.12 lakh crore in incremental deposits during this fiscal ending March 2016.
Amid a surge in the number of loan defaults by corporates, retirement fund body EPFO will cut exposure in corporate bonds and park more funds in the secure government securities.
The finance ministry has approved a proposal mooted by the labour ministry to hold back investments in corporate bonds by up to 15 per cent in view of volatility in stock markets and invest the same in government securities (G-Secs).
"The finance ministry has approved a labour ministry proposal to increase investment in government securities by EPFO from 50 per cent to 65 per cent of investible funds every year. Besides, it has also agreed to hold back investment in corporate bonds," a source said.
The source said this decision will be further vetted by the EPFO trustees' at its meeting on March 29 after which the labour ministry will notify the new investment pattern.
"This is being done in view of the volatility in the stock markets," the source added.
The increased investment norm in government bonds will result in around Rs 11,000 crore (Rs 110 billion) additional investments in these securities every year.
EPFO is expected to receive about Rs 1.12 lakh crore in incremental deposits during this fiscal ending March 2016. The body manages a corpus of over Rs 8.5 lakh crore and has a subscriber base of more than 5 crore.
According to the investment pattern approved by the CBT for 2015-16, EPFO was allowed to invest 45-50 per cent in government securities and related investments, 35-45 per cent in debt instruments and related investments, including those issued by "body corporate".
It also includes investments of up to 5 per cent in short-term debt instruments and related investments, including those by body corporate provided such investment will be made only in such instruments, which have a minimum rating of A1+ by at least two credit rating agencies registered with Sebi.
The finance ministry also notified the new investment pattern for private provident funds, including EPFO, which provided that these funds can invest a minimum of 5 per cent and a maximum of 15 per cent of investible deposits in equity or equity-related schemes.
Following this, Employees' Provident Fund Organisation's (EPFO) apex decision making body the Central Board of Trustees (CBT) headed by the labour minister approved the new investment pattern, paving the way for parking its funds in stock markets.
However, taking baby steps, EPFO decided to invest only 5 per cent of its investible deposits in the current fiscal in exchange-traded funds (ETFs) which are considered as a more safe bet than pure equity investments.
Recently, an EPFO analysis revealed that the body earned a negative return of 9.54 per cent on its Rs 5,920 crore (Rs 59.20 billion) investment in ETFs since August 2015.
Market value of investments of Rs 5,920 crore in the ETFs this fiscal was Rs 5,355 crore (Rs 53.55 billion) on February 29, 2016, as per an analysis of equity investment by EPFO.
