The proposal is part of a new benchmark methodology being developed for debt investments, under which fund manager performance would play a direct role in determining portfolio allocation. EPFO is also reassessing benchmarks for the Employees’ Provident Fund (EPF) and the Employees’ Pension Scheme (EPS), with officials noting that the pension scheme’s much longer investment horizon warrants a separate approach.
Under the revised framework, the method used to assess fund manager performance is set to change. “In the earlier benchmark, the portfolio yield of a fund manager was a tenor-weighted yield. In the new benchmark, the tenor has been separated from the portfolio yield, and a clause has been added under which portfolio allocation will vary based on performance,” an official said.
The EPFO’s Investment Committee, which oversees assets of nearly Rs 30 lakh crore, is expected to deliberate on the proposal at its meeting scheduled for February 10. The discussions come just weeks before the retirement fund body announces the annual interest rate for its nearly 30 crore members for the financial year ending March 31.
As part of broader reforms, the EPFO has also tasked its consultant Crisil with studying the feasibility of investing in emerging and sunrise sectors such as rare earths, railways and defence. Crisil has further evaluated the performance of sectoral, factor-based and style-based indices to assess their suitability for long-term investment.
Among the indices examined are those tracking banking and financial services, information technology, FMCG and select global markets. The consultant has also analysed momentum, value and low-volatility indices, ranking them on the basis of risk-adjusted returns.
The proposals form part of a wider consultation within the EPFO as it looks to diversify its equity investments beyond exchange-traded funds linked to benchmark indices such as the NSE Nifty and the BSE Sensex. The aim is to enhance returns at a time when EPFO has been declaring interest rates that are higher than prevailing yields on government bonds.