Performance-based incentives for EPFO managers in works

NEW DELHI: The Employees' Provident Fund Organisation (EPFO) is examining a proposal to introduce 'performance-linked incentives' for its fund managers, which will see it allocate more funds to those who give better returns. This is part of the new benchmark methodology being developed for debt investments, officials told TOI. It is also assessing benchmarks for the Employees' Provident Fund (EPF) and Employees' Pension Scheme (EPS), as the latter has a substantially longer investment horizon.

"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. Also, a clause has been added that the allocation of the portfolio will vary according to their performance," an official said.

The Investment Committee (IC) of the EPFO, which manages assets worth Rs 30 lakh crore, is expected to deliberate and examine the available options at an upcoming meeting on Feb 10, weeks before it is slated to announce the annual interest rate for its nearly 30 crore members for the financial year ending March 31.

Besides, in previous committee meetings, consultant Crisil was asked to assess the feasibility of investing in emerging, sunrise sectors such as rare earths, railways and defence, along with examining yields of sectoral, factor and style-based indices.

Some of the sectoral indices evaluated by Crisil include those tracking banking and financial services, IT, global indices, and FMCG. It also assessed indices that track momentum stocks, value stocks, low volatility stocks, and ranked some of them on the basis of their risk-adjusted returns.

These proposals are part of a wider consultation process underway in the retirement fund body as it is also looking to diversify its equity investments beyond exchange traded funds tracking the benchmark NSE Nifty and BSE sensex indices, in a bid to earn greater income as it is announcing higher annual returns than prevailing yields on govt bonds in recent years.