The government may soon allow the Employees’ Provident Fund Organisation (EPFO) to purchase government-backed bonds with maturity period of more than 10 years from the secondary market.
The decision, when finalised, would have positive implications for the money market by raising the demand for government-backed bonds with longer maturity.
Under the present investment guidelines, the EPFO is prohibited from buying bonds having maturity of 10 years from the secondary market though it can subscribe to such bonds as and when they are floated by the Reserve Bank.
Arguing that the secondary market restrictions were regressive, the EPFO’s key advisory body Finance and Investment Committee (FIC) had suggested appropriate modifications to the investment pattern for EPFO, a Labour Ministry source said.
“The FIC has suggested in its recent meeting that the restriction on secondary market purchases of central government-guaranteed securities having tenure of more than 10 years be done away with”, he added.
The proposal will now be vetted by the EPFO’s apex body Central Board of Trustees (CBT), which invariably approves the recommendation of the FIC.
The FIC, while recommending the proposal, pointed out that because of the restrictions EPFO missed some attractive investment opportunities available in the secondary market, especially with regard to the bonds of the infrastructure finance company IIFCL.
The present investment pattern mandates EPFO to invest up to 15 per cent in government guarantee instruments.
This category of market instruments includes government securities as defined in Section 2 of the Public Debt Act 1944, created and issued by any state government and units of such Mutual Funds which have been set up as dedicated funds for investment in government securities and which have been approved by the Securities and Exchange Board of India.
EPFO is currently managing retirement fund of Rs 2.57 lakh crore with a subscriber—base of more than 4.5 crore.
