IN what may have deep repercussions on the countrys moribund bond market, one of its largest investors the Employees Provident Fund Organisation (EPFO) is set to turn into an active trader and also no longer invest in bonds guaranteed by state governments.
In a marked shift from its current policy of holding all investments till maturity, the EPFO has sought approval to trade and exit investments.
The proposals are a part of the revised agenda that the EPFOs apex decision making body the Central Board of Trustees (CBT) will take up in its meeting on Monday.
Investments in all holdings that do not conform to the existing investment guidelines should be exited, the EPFO has said, further proposing that trading should be allowed in all such transactions which can result in a profit to the EPFO on the basis of assured and matching purchase and sale calls available in the market.
It is proposed that the Finance and Investment Committee of the CBT may go into various aspects of benefits and associated risks of trading and evolve comprehensive guidelines, said the revised agenda, a copy of which is with The Indian Express.
The proposal is a part of the EPFOs switch to the new investment pattern of 2008 that is yet to be approved by the CBT. The retirement fund manager has also suggested that it should not invest in state government guaranteed bonds and instead put in more funds in Central and state government paper.
It has mooted removing internal limits in state development loans (SDL) and central government securities (CTG) when it fully adopts the 2008 investment pattern.
Subject to market forecast, the endeavour should be to invest in long term government securities in order to maintain a healthy asset-liability ratio, said the revised agenda.
Under the 2008 investment pattern, that has to be approved by the CBT, the EPFO can invest up to 55 per cent of its corpus in central and state government securities including SDL and CTG.
At present, the EPFO, with a corpus of over Rs 5.46 lakh crore is the only investor that holds government paper till maturity and is also one of the largest investors in state government guaranteed bonds apart from the Life Insurance Corporation of India and commercial banks.
The move away from state government backed securities is likely because of high default risks and low returns. But the option to trade will have a huge impact on