EPFO ties up with IIM-B to manage its funds better

New Delhi: Retirement fund manager Employees’ Provident Fund Organisation (EPFO) has joined hands with the Indian Institute of Management-Bangalore (IIM-B) to create a pool of finance and investment professionals as its corpus continues to bulge and it explores options to diversify investment.

EPFO had already got a couple of batches of its officers trained and is sending another batch for an “advanced training programme on finance and investment” beginning on 30 September, according to an internal circular of the fund manager seen by Mint.

The officers will be trained at IIM-B with special emphasis on the financial market index, options and derivatives, portfolio selection and diversification, exchange traded funds (ETFs), behavioural finance, and portfolio performance monitoring.

“Though EPFO is a social security and finance organization, most of its officers are not well-trained finance professionals. We wish to train and create a pool of officers to handle the EPFO corpus better. This will bring professionalism, more domain expertise and vision on how to manage the money better,” said an EPFO official requesting anonymity.

“The objective of this programme is to train the officers of EPFO on equity investments and portfolio management so that they can make the right investment decisions and monitor the performance of the investments on an ongoing basis,” said Madan Mohan Raj, chief programmes officer, executive education, at IIM-B.

The officers are in the cadre of additional central PF commissioner and regional PF commissioner having experience of 10 or more years.

EPFO has fund managers in the form of asset management companies (AMCs) to take care of its investments. In August, the central board of the EPFO decided to appoint two asset management companies, UTI AMC and SBI Mutual Fund, as its fund managers for three years beginning October 2019. The body had appointed the State Bank of India, ICICI Securities Primary Dealership, Reliance Capital, and HSBC AMC for a three-year term, starting 1 April 2015. Their tenure was extended till new fund managers were appointed.

There is a team of officers in the finance department of the EPFO and finance investment committee who regularly deal with AMCs related to fund flow, investment and liquidation. Unless their knowledge grows, they won’t be capable of dealing with and guiding the AMCs effectively, the EPFO official cited above said.

At present, EPFO has a corpus of more than ₹11 trillion and every year it gets an annual deposit of more than ₹1.25 trillion from more than 60 million active subscribers. Of the annual accruals, it invests 85% in debt instruments and 15% in stocks via ETFs. EPFO has invested more than ₹70,000 in ETFs over past three years but does not have a formal system in place yet on how it wants to credit the ETF benefits to millions of subscribers.

The retirement fund manager is also exploring ways to broaden its equity portfolio beyond the ETFs comprising Nifty 50 and Sensex 30 stocks. It feels that equity investments in just two categories of ETFs run the risk of too much concentration in a small clutch of stocks and lower returns because of lack of diversification. Its investment committee has been deliberating for months now on whether it should invest in multi-cap and mid-cap ETFs, a market instrument that is far more volatile but can provide better risk-adjusted returns over the long term and such training at IIM-B will help the organization to take better decisions, said the EPFO official cited above.

There is a concerted effort to bring professionalism to the organization, a point that the draft social security code, too, has hinted at in the form appointing a CEO from outside the government fold to lead the retirement fund body, he said.