In a major policy initiative to deepen the bond market and get higher returns on long-term savings, the Centre has allowed the Employees Provident Fund Organisation (EPFO) to invest up to 55% in corporate bonds, including rupee-denominated bonds of multilateral agencies such as World Bank, IFC and ADB.
While the labour ministry categorically ruled out any investment in equities, the EPFO has been allowed to invest up to 5% of PF money in money market instruments, including debt mutual funds.
Though the Central Board of Trustees approved the new investment pattern at its board meeting in February 25, the labour ministry notified the new investment pattern for EPFO late last month. The new investment norms would channelise more PF funds into corporate bonds and mutual funds than locking up most of the savings in central and state government bonds.
According to the new norm, EPFO can invest up to 55% of incremental contribution of subscribers in debt papers issues by private companies, PSUs and banks with a minimum maturity of three years. At least 75% of the investment in this category should have an "investment grade" (minimum "AA" rating) from at least one credit rating agency.
Keeping with the time, the government for the first time included rupee bonds issued by World Bank arms IBRD and IFC, and Asian Development Bank in EPFO's investment portfolio. Both IFC and ADB have plans to sell rupee bonds in India so that it could lend in the local currency.