EPFO laps up top-rated PSU bonds to deploy special deposits

MUMBAI: The Employees' Provident Fund Organisation (EPFO), which manages retirement funds for millions of Indians, has once again made good use of its year-end windfall from the government's Special Deposit Scheme with an investment of nearly Rs 10,000 crore in top-rated corporate bonds clinching best possible rates.

EPFO invested in top-rated public sector bonds earning decent interest rates in the month of December, including Rural Electrification Corp, Power Finance Corp, NTPC, and National Bank for Agriculture and Rural Development (Nabard), the Central PF Commissioner's office said in an email reply to ET.

“Special Deposits amount received becomes part of the investible fund, which is then invested by our discretionary fund managers as per market conditions and views taken by them," the email said.

“The coupon (interest rate) varies as per the market rates." It, however, did not elaborate on the details.

The central fund body earns an interest income of about Rs 4,700 crore from the government's Special Deposit Scheme (SDS), while together with other standalone provident funds this may be more than Rs 12,000 crore. SDS yields about 8.7% annually, which accrues at the endbeginning of every calendar year. Other fund inflows for EPFO include the usual member contributions and other interest income.

Those triple-A rated corporate bonds, issued mostly in the last two weeks of December, have interest rates in the range of 7.23-7.54 per cent across 10-15 year maturities. These rates are relatively com pared with benchmark bonds, which now yield about 75-100 basis points less than the levels.

For example, Nabard has sold about Rs 3,000 crore to EPFO in a one-on-one deal that will help EPFO earn 7.48 per cent for 15 years.REC has placed Rs 3,000 crore worth of corporate bonds of which the central body subscribed about `2,600 crore at 7.54 per cent with 10-year maturity . “EPFO has obtained best possible rates amid falling rates,“ said Ajay Manglunia, executive vice president fixed income at Edelweiss Finance. “EPFO will earn higher interest income over long term.Those securities are all top rated and quasi-sovereign papers that mitigate default risk.“

Even in the secondary market, EPFO is sitting on notional profits as yields have dipped about 20-25 basis points in the past two weeks.

“These are viewed as prudent investments," said Ashish Agarwal, executive director, AK Capital.“When interest rates are falling across the board, coupons offered by these top-rated companies have provided attractive spreads over longterm G-Sec yields."