Retirement fund manager Employees’ Provident Fund Organisation (EPFO) may start investing a portion of its annual deposits in infrastructure investment trusts (InvITs).
The move could not only help India boost investments in infrastructure but also expand the scope of EPFO’s investment basket beyond bonds, government securities, and exchange-traded funds (ETFs), two government officials said, requesting anonymity.
An InvIT is an alternative investment fund (AIF) that works like mutual funds and is regulated by the Securities and Exchange Board of India (Sebi).
“Among AIFs, InvITs are a good option. There is a demand for long-term funds in the larger infrastructure sector. It also offers a diverse mix to EPFO to look beyond its traditional investment vehicles,” said one of the two officials cited above.
The Union budget FY22 signalled the government’s intent to pump in more money from institutions into infrastructure. There is an understanding that through InvITs, infrastructure projects can raise long-term funds from pension funds, said the second official.
Infrastructure funds, SME funds and social venture funds are some of the options in the category one segment of the AIF and are governed by Sebi regulations. This has also “been allowed by the Union government to be an investment option for EPFO,” according to the second official and documents reviewed by Mint.
“But if you look at the feasibility of these options, then infra funds (InvITs) are emerging faster,” the second official added.
“The alternative investment fund gives us a wider option to park our deposits. But we are allowed to invest in category one and category two AIFs. Here InvITs are possible opportunities. Though InvITs are available in private and PSU space, EPFO can weigh the options and may look at PSU InvIT if our central board decides to look at only the government sector,” the second official said.
Of late, EPFO has been getting deposits of nearly ₹16,000 crore per month, which means an annual accrual of ₹1.9 trillion during the 2021-22 financial year. While 15% of the annual accruals can be invested in stocks via ETFs, the rest is invested in debt instruments.
“The government has allowed us to invest a portion of our deposits in alternative funds. But what instruments we will invest afresh will be decided by our central board,” said Sunil Barthwal, central PF commissioner, without giving details.
“InvITs are good long-term options to generate returns. But for that, you have to devise a proper accounting policy, unitize those investments, and reflect them in each of the EPFO subscriber’s accounts. Yes, they do come with certain volatility, and EPFO will have to take that into account while investing,” said Amit Gopal, principal and India business leader-investments at Mercer.
There are several InvITs in the market, and in April, state-run PowerGrid Corp. of India Ltd launched the first InvIT ever by a government-run company. InvITs enable developers of infrastructure assets to monetize their assets by pooling multiple assets under a single entity.