EPFO might soon invest in rare earths, railways, defense
What's the story
The Employees' Provident Fund Organisation (EPFO) is planning to diversify its investment portfolio by exploring new sectors such as rare earths, railways, and defense. The move comes as part of a strategy to generate higher annual returns for its members than the current government bond yields. The EPFO's investment committee recently discussed these proposals in a meeting, according to Times of India.
Incentive scheme
Performance-linked incentives for fund managers
Along with exploring new investment avenues, the EPFO's investment committee has also approved a proposal to introduce performance-linked incentives for its fund managers. This means that the provident fund body will allocate more funds to those who deliver better returns. The proposal is part of a new benchmark methodology for debt investments, which was discussed in detail during the recent meeting.
Penalty provisions
Accelerated negative marking provision
The new benchmark methodology also has an accelerated negative marking provision for any fund manager who fails to meet it. This would adversely affect their portfolio allocation. The new approach also discourages the fund managers from parking funds in low-yielding TREPS, which are basically short-term and low-risk money market instruments.
Research panel
Formation of high-powered committee
The EPFO is likely to form a high-powered committee to examine its investment objectives, policy, and guidelines. The panel, which was proposed by a government representative, will include experts from various fields and government departments.