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EPFO seeks nod for bigger play in state government bonds

Source |  : By Saikat Das

MUMBAI: The Employee Provident Fund Organisation (EPFO) has requested the Centre to alter investment guidelines applicable to it so that India’s largest debt investor could buy more state-government loans with money it might otherwise have had to allocate for riskier debt paper.

The EPFO manages retirement funds for millions of Indians in both public and private employment, and is mandated to invest about 35 per cent of its corpus into corporate bonds. It wants the limit trimmed so that bigger allocations to state-government bonds are possible, two people familiar with the matter told ET. “Being a manager of public money, EPFO is traditionally averse to investing in lower-rated papers even if they are allowed in certain categories,” one of the two officials cited above said Monday.

Moreover, there is a scarcity of quality corporate bonds while state bonds are offering decent returns with a kind of sovereign support, the person said.

VP Joy, the central provident fund commissioner, declined to comment on the matter.

Bonds issued by the state government offer more than 8 per cent on the available stock. EPFO is permitted to invest up to 50 per cent in G-Secs and state bonds.

“There are hardly any corporate bond sales in AA+ or AAA-rated segments amid surging yields,” said Ajay Manglunia, executive vice-president at Edelweiss FinancialBSE 3.73 %. “Companies are indecisive, with the cost of funds spiking in the bond market. Investment appetite has also contracted as many of them are incurring mark-to-market losses in their portfolios the last one or two months.”

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