Investments should be checked daily.
Nearly seven years after deploying a portion of its corpus in the stock market through professional fund managers, the Employees’ Provident Fund Organization (EPFO) has now appointed an independent auditor to monitor its investment transactions and report any deviations. Decided to appoint ,
An official said the decision to appoint an external concurrent auditor who can “examine day-to-day transactions by portfolio managers” was taken before the current volatility in the stock markets, and was aimed at ensuring that investment Specify the pattern and norms to be followed strictly for EPF savings.
In 2020-21, fund managers invested around ₹1.82 lakh crore, including equity investment of at least 5% of the incremental EPF inflows into members’ accounts. EPFO had started equity investment in 2015-16, with a maximum fresh investment cap of 15%. Minimum 45% and maximum 65% inflows are invested in government securities.
Entrusted with retirement savings of over Rs 15.7 lakh crore of formal sector employees, EPFO has been using multiple portfolio managers to manage its investments since 2008.
It currently depends on UTI Asset Management Company and SBI Mutual Fund to allocate the monthly contributions of the members in various securities.
“Based on the decision of the EPFO’s Central Board of Trustees, headed by Union Labor and Employment Minister Bhupender Yadav, we are in the process of selecting an external concurrent auditor to verify the portfolio managers’ compliance with the terms of the agreement,” the official said. are in.” ,
Apart from procedural lapses and challenges in the investment process, the auditor will be tasked to conduct a detailed analysis of the instances of downgrades and defaults in the holdings of the EPFO every quarter. However, the credit rating of the securities will be reviewed on a daily basis, with any downgrade or ‘negative outlook’ reported immediately flagged to the PF body.
“Indeed, any exceptions or deviations have to be reported to us immediately. The auditor will have to verify the details of daily transactions not only to assess whether the fund managers are investing the EPF money immediately, but also to assess whether the investments made provide the highest available yield at that point of time. and are done at ‘optimal’. market rate’. We also want to know whether each investment decision is supported by an argument,” the official explained.
For example, if EPF funds remain uninvested for a significant period, the auditor will assess the ‘opportunity cost on account of delayed investments’, and look for any potential conflicts of interest in the decision-making processes of the fund managers . While the EPFO periodically reviews the performance of its portfolio managers, the auditor has to check whether the issues highlighted in the previous reviews have been addressed.
better returns
On a broader level, the EPFO expects the auditor to consider regulatory and procedural constraints in the investment process as well as be aware of emerging policy issues in India and across the globe that would help in providing better returns and identifying its major risks. can do. investment fund.
The PF office expects that the auditor’s appointment will end in this financial year itself. Along with the monthly audit report, the auditor shall submit an annual report certifying investment holdings after physical verification, and may be asked to conduct other ad-hoc audits.
As on March 31, 2020, EPFO has 24.77 crore members having EPF accounts, in which 14.36 crore members have been allotted unique account numbers. Of these, about five crore members had active contributions in their EPF accounts during 2019-20.
As per the proposed terms of engagement, EPFO will be able to verify the audit records through any other external agency, if required.
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