Over time, there was a rising mismatch between the excess/deficit projected by the Workers Provident Fund Organisation (EPFO) when it broadcasts the yearly rate of interest and the precise deficit/surplus. Throughout years of larger surpluses, this will likely not trigger monetary points.
As an illustration, in 2019-20, when the EPFO had introduced an rate of interest of 8.5 per cent, the precise surplus was Rs 954.62 crore, greater than the preliminary projection of Rs 700 crore. Nonetheless, there’s a trigger for concern when there may be an precise deficit as towards the organisation’s projection of a surplus.
For instance, in 2021-22, towards the projection of a Rs 450 crore surplus, there was really a deficit of Rs 197.72 crore.
In July, the finance ministry had flagged this problem of the EPFO slipping right into a deficit. And now, as reported on this paper, the Central Board of Trustees of the EPFO have been instructed to not declare the rate of interest starting from the continuing monetary 12 months with out the consent of the finance ministry, and to additionally look at the excessive rates of interest introduced by the organisation.
Prior to now, too, there has typically been criticism of the EPFO asserting a better rate of interest that’s not thought-about to be according to the prevailing market situation.
As an illustration, for 2020-21, it had beneficial an rate of interest of 8.5 per cent, when compared, the 10-year GSec yields had fallen to six.23 per cent, and the SBI was providing 5.4 per cent on 5-10 12 months deposits. As a sizeable share of the funds with the organisation are allotted in direction of authorities/debt securities, paying its contributing members a better price — the 10-year GSec yield is presently hovering round 7.1 per cent — would entail investing in greater curiosity yielding bonds or rising the allocation in direction of equities.
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This shift in portfolio allocation would contain a change within the risk-reward profile of investments, and thus requires severe consideration. The EPFO’s previous investments in greater yielding securities of firms reminiscent of IL&FS, Dewan Housing Finance Company and Reliance Capital solely spotlight the chance this poses, and the necessity for fastidiously accessing such choices.
Contemplating that the workers’ provident fund types an integral a part of the social safety framework within the nation, it should undertake a cautious strategy, despite the fact that its contributing members will probably be desirous of upper charges, and understandably so. It should fastidiously assess the risk-reward matrix of its funding portfolio, taking care to minimise the dangers because it pursues larger returns, whereas additionally aligning the rate of interest with the broader market realities.
Alongside, the EPFO should not solely be extra cautious in its evaluation of its obligations, it must also be extra clear about its operations by releasing common updates of its portfolio and funding selections.
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First revealed on: 19-09-2023 at 07:00 IST
