The Employees Provident Fund Organisation (EPFO) will soon be allowed to purchase long-term government bonds with maturity of 10 years or more from the secondary market.
Under the present investment guidelines, EPFO, which manages acorpus of Rs 2.57 lakh crore, can buy only short-term government bonds from the secondary market, except bonds floated by the Reserve Bank of India.
The organisation, however, can continue to invest in shortand long-term bonds in the primary market. This decision is likely to help the money market, as it will push up demand for long-term government bonds.
The decision was taken by the Finance and Investment Committee (FIC), the advisory body of the organisation, and will be placed before its apex decision-making body, the Central Board of Trustees (CBT) for approval at its next meeting on December 5.
The CBT usually upholds the recommendations of the FIC. Arguing that the secondary market restrictions are regressive, FIC had on August 18 suggested appropriate modifications to the investment pattern.
At the August 18 meeting, the FIC had suggested the restrictions on secondary market purchases of central government-guaranteed securities with over 10 years tenure be done away with.
While making the proposal, it had pointed out that EPFO was missing out some attractive investment opportunities in the secondary market because of the restrictions. A notable miss was bonds from infrastructure finance company IIFCL.
The present investment pattern mandates EPFO to invest up to 15 per cent in governmentguaranteed instruments. This category of market instruments includes government securities as defined in Section 2 of the Public Debt Act of 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.
The EPFO manages a huge retirement fund corpus of Rs 2.57 lakh crore and has a subscriber base of 47 million. This decision is likely to help the money market, as it will push up demand for long-term government bonds
