👍👍👍At 8.15% for FY23, EPFO returns are second lowest in over 45 years

Clipped from: https://www.business-standard.com/economy/news/at-8-15-epfo-returns-second-lowest-in-over-45-years-shows-data-123032800993_1.html

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The Employees’ Provident Fund Organisation (EPFO) decision to increase its declared rate of return has narrowed the gap with the return on government securities, which form the most significant chunk of its investments.

The past two years had the lowest EPFO returns since 1977-78. The declared rate of 8.15 per cent for 2022-23 is the second-lowest since 1977-78 after the EPFO’s 2021-22 declared rate of return of 8.1 per cent. The EPFO’s return in 1977-78 was 8 per cent. It has since been 8.25 per cent or higher. The peak was 12 per cent, a rate that was maintained unchanged between 1989-90 and 1999-2000 (chart 1).  

The EPFO’s return has moved closely with government securities. The ten years leading up to the pandemic had seen an average 81 basis point difference between EPFO returns and government yields.  One per cent is 100 basis points. The EPFO returns were higher than the government yield. This gap widened to an average of over 200 basis points in 2019-20, 2020-21 and 2021-22.

Chart

Yields have risen by around 100 basis points since then while the EPFO has raised its return by 5 basis points.  The latest return on 10-year government securities was around 7.3 per cent. The lower increase in EPFO’s declared return has meant that the EPFO rate is now around 85 basis points higher than the prevailing yield on 10-year government securities; bringing it closer to the pre-pandemic average.  

The EPFO had a portfolio of Rs 18.3 trillion according to data as of 2021-22. Around 54.6 per cent of the capital is invested in state or central government securities. State development loans, issued by state governments, account for 38.05 per cent or Rs 6.97 trillion in investments. Central government securities account for around Rs 3 trillion (16.53 per cent).

The remainder of the capital is invested in investments including public and private sector corporate bonds, as well as exchange traded funds; among others (chart 2). 

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