EPFO gets board approval to invest up to 5% in InvITs, alternative funds

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© Arun Sreenivasan EPFO gets board approval to invest up to 5% in InvITs, alternative funds

The central board of the Employees’ Provident Fund Organisation (EPFO) on November 20 approved investing up to 5 percent of the annual deposits in alternative investment funds (AIFs) including infrastructure investment trusts (InvITs).

The central board also approved setting up four subcommittees on employee pension, social security and augmentation of digital capacity to make EPFO a better user-friendly organisation.

“The board today gave it a go-ahead. We shall only focus on government-backed alternatives, which are category one funds like public sector InvITs,” said Sunil Barthwal, secretary, labour and employment.

Barthwal said the finance and audit committee of the EPFO has been entrusted with the task to take up these funds on a “case-to-case basis”.

On November 5, Moneycontrol was the first to report that the EPFO board is set to give its nod to AIFs including InvITs.

A five percent investment exposure in AIFs means, the retirement fund body will park up to Rs 10,000 crore in AIFs as it has an annual accrual between Rs 1.9 lakh crore and Rs 2 lakh crore.

“The Board decided to empower the Finance Investment and Audit Committee (FIAC) to decide upon the investment options, on case-to-case basis, for investment in all such asset classes which are included in the Pattern of Investment as notified by Government of India,” the retirement fund body said in a separate statement.

This will offer diversification to the EPFO’s investment basket but experts believe AIFs come with a fair amount of risks too.

“For an infra developer InvITs are good vehicles to offload risk but a pension fund must consider that it is a risk. The long-term return may or may not be great. It’s better to have a judicious approach while selecting such investments,” said Suresh Sadagopan, founder of Ladder7 Financial Advisories.

The Union government allowed investing in Alternative Investment Funds (AIFs) earlier this year but the notification came after the last EPFO board meeting in March.

EPFO’s corpus is growing and there is a need to diversify investments. And, there is also a demand for long-term funds in the larger infrastructure space.

Regulated by the Securities and Exchange Board of India (SEBI), InvIT is an AIF that functions like a mutual fund. InvITs enable developers of infrastructure assets to monetise their assets by pooling multiple assets under a single entity.

Among AIFs, other than InvITs, SME funds, and social venture funds are some of the options in the category one segment of the AIF and are regulated by SEBI. Authorities believe that to begin with, the Central Board of Trustees may only discuss public sector InvITs.

Other decisions:

Other than the investment approval, the board also allowed UTI MF and SBI mutual fund to continue as “ETF manufacturers” till the end of 2021.

The board also decided to set up four sub-committees on employees’ pension scheme (EPS), the cadre promotion and reconstruction, improving digital infra and social security provisions, said Union Labour and Employment Minister Bhupendra Yadav.

Two committees on establishment-related matters and futuristic implementation of Social Security Code will be headed by Rameswar Teli, the Minister of State for Labour and Employment. The remaining two committees on digital capacity building and pension-related issues will be headed by Labour and Employment Secretary Barthwal.

“Approval was accorded for development of centralised IT-enabled systems by C-DAC. Post this, the field functionalities will move on a central database in a phased manner enabling smoother operations and enhanced service delivery. The centralised system will facilitate de‐duplication and merger of all PF accounts of any member. It will remove the requirement of transfer of account on change of job,” EPFO said.