EPFO may buy long-term govt bonds from secondary markets

Last Updated: Wednesday, December 2, 2009 - 15:32

New Delhi: The retirement fund manager 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, the Employees
Provident Fund Organisation (EPFO), which manages a corpus of
Rs 2.57 lakh crore, can buy only short-term government bonds
from the secondary market, except bonds floated by the Reserve
Bank.

The EPFO, however, can continue to invest in short-term
and 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 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 scheduled for December 5.

It is a general practice that the CBT upholds the
recommendations of the FIC. Arguing that the secondary market
restrictions are regressive, the FIC had on August 18
suggested appropriate modifications to the investment pattern.

At the August 18 meeting, the FIC had suggested that the
restrictions on secondary market purchases of Central
government-guaranteed securities with over 10 years tenure be
done away with.

The FIC, while recommending the proposal, had pointed out
that because of the restrictions, the EPFO was missing out
some attractive investment opportunities available in the
secondary markets. A notable miss was the bonds from
infrastructure finance company IIFCL.

The present investment pattern mandates EPFO to invest
up to 15 per cent in government guaranteed 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.
EPFO manages a huge retirement fund corpus of Rs 2.57
lakh crore with a subscriber-base about 4.7 crore.

PTI



First Published: Wednesday, December 2, 2009 - 15:32

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