EPFO likely to trade in G-secs

With the finance ministry refusing to hike SDS rates and allow it to park funds in high interest bearing postal deposits, the EPFO is toying with the idea of trading in government securities as one of the strategies to increase returns on its assets.

"Going by the inclination of the finance ministry over the issues of SDS and postal deposits, there appears to be a little room for manouvering for EPFO to earn higher returns on its investments, although our interest liabilities are on the higher side," informed sources told.

With interest income estimated at Rs 5,919.42 crore, the 9.5% EPF rate to subscribers would mean an outgo of Rs 6,846.57 crore, thus leaving a shortfall of Rs 927.15 crore.

However, the sources stress that the crux of the issue was not bridging the gap for this year alone, but to find a "tangible" solution for the deficits, if any, in the coming years and to make the system sustainable.

Considering the sheer size in the market, the EPFO should embark on trading in securities, they said, referring to the "handsome" returns offered by the new generation life insurers even amidst low interest rate regime.

At present, EPFO invests 40% of its funds in the government securities (25% in central papers and the remainig 15% in states' papers).

Going by the present EPFO corpus of around Rs 1,30,000 crore, gross investments in G-secs works to over Rs 6,000 crore.