If agreed upon, InvITs can boost investments in infrastructure and also expand the scope of EPFO’s investment basket beyond exchange-traded funds (ETFs), government securities and bonds.
“The CBT (central board of trustees) is meeting on November 16 after almost eight months. Among other issues, investment in InvITs is likely to be taken up for discussion,” said a government official requesting anonymity.
“Investing in Alternative Investment Funds (AIFs) was allowed earlier this year as a matter of rule. But the notification came after the last EPFO board meet in March. It’s logical that the issue is put on the table for the central board to discuss,” an EPFO board member said, also requesting anonymity.
“EPFO’s corpus is growing and there is need to diversify investments. And, there is a demand for long-term funds in the larger infrastructure space. Both the points complement each other and so a discussion on its acceptance as an investment vehicle for EPFO will be crucial,” said the unnamed government official cited above,” the government official
In recent months, EPFO has been getting monthly deposits between Rs 15,000 crore and Rs 16,000 crore, which means an annual deposit between Rs 1.8 lakh crore to Rs 1.9 lakh crore in FY22. While 15 percent of the annual accruals can be invested in can equities, the rest is invested in debt instruments. This gives an opportunity to diversify the investment basket.
The 2021-22 Union Budget had indicated the government’s desire to drive in more corpus into infrastructure, and there is a broad understanding that infrastructure projects can raise long-term corpus from pension funds through the InvITs route.
To be sure, the agendas of the CBT meeting is still being finalised, and the investment committee of the EPFO is expected to meet ahead of the November 16 central board meeting.
“The CBT meeting circular has been issued and all stakeholders has been informed about the meet. The agendas will be finalised soon and shared with all the board members,” said the official.
Regulated by the Securities and Exchange Board of India (SEBI), InvIT is an AIF that functions like a mutual fund. InvITs enable developers of infrastructure assets to monetize their assets by pooling multiple assets under a single entity.
Among AIFs, other than InvITs, SME funds, and social venture funds are some of the options in the category one segment of the AIF and are regulated by SEBI. Authorities believe that to begin with – CBT may only discuss about public sector InvITs than private sector ones.
But before investing in InvITs, experts believe that EPFO needs to put in place a proper accounting policy to unitize those investments, and credit units in each of the EPF subscriber’s accounts. There are several InvITs in the market, including InvITs by state-run PowerGrid Corp of India, and the National Highway Authorities of India (NHAI).