The Employees Provident Fund Organisation (EPFO), which has a corpus of Rs 2,40,000 crore ($60 billion)currently and more than 4 crore subscribers, has shortlisted seven private sector funds to manage its capital. According to The Economic Times, the private asset management companies (AMCs) shortlisted are Reliance Mutual Fund, HDFC, ICICI Prudential, Templeton, HSBC, the Tatas, Sundaram BNP Paribas AMC and UTI AMC. Out of these three AMCs will be selected and the announcement will be made by September. EPFO mainly invests in debt.
The Central Board of Trustees (CBT) of EFPO will meet in August to discuss the issue of introducing multiple private fund managers, a move which trade unions have opposed. The CBT is chaired by Minister for Labour Oscar Fernandes. This moves comes as Finance Minister P Chidambaram has hinted that EFPO may invest funds in high yielding instruments in order to provide better returns.
With inflation reaching nearly 12 per cent, the 8.5 per cent interest rate offered by EPFO fetches negative real returns. A substantial portion of the EPFO’s corpus, which is invested in the Special Deposit Scheme (SDS) that earns only an 8 per cent interest rate. There has been a demand from certain quarters that the interest rate be raised to 12 per cent. Also an earlier proposal to invest 5 per cent of EFPO’s corpus in stock market was rejected.
Another applicant was State Bank of India, which was the sole manager of EPFO for decades till now, has been condemned for its poor handling of funds. The mishandling led to a deficit of Rs 264 crore. SBI is now under investigation by auditors and report regarding clearance of charges from the Institute of Chartered Accountants of India (ICAI) is expected to be released in September. Another PSU who had applied was Punjab National Bank.