29 February 2016 09:11 am Views - 1118
State-controlled private sector pension fund, the Employee’s Provident Fund may shed (EPF) some of its investments in the stock market and other securities in order to honour budgetary commitments, the Central Bank Governor said.
“There was a move to give EPF contributors 30 percent of their balance as housing loans. That was announced in the 2015 (interim) budget.
That means the EPF fund manager has a huge new problem, which is that he has to keep 30 percent of his fund very liquid,” Governor Arjuna Mahendran said.
He said according to the 2015 budget proposal of former President Mahinda Rajapaksa’s regime, Rs.1, 000 payment will also have to be made to provide dividends to each EPF account holder of more than 10 years.
Further, the recent budget proposed that a Rs. 100 premium be deducted from EPF accounts for an insurance scheme for children of the EPF account holders.
The EPF was recently observed trimming its stakes in blue chips such as Dialog Axiata PLC, John Keells Holdings PLC, Aitken Spence Hotel Holdings PLC, and other listed companies such as Overseas Realty Ceylon PLC and Dippled Products PLC.
Some minor divestments were also seen in other listed companies. “So maybe that is why they’re also letting go of some of these equity positions. This is a new constraint they have to work with. And that gives you a flavour as to the pressures they are under if there are big redemptions under these housing loans,” Mahendran added.
The Central Bank acts as the custodian for the EPF fund. Under the governorship of Ajit Nivaard Cabraal, the EPF made questionable investments, especially in banks and financial institutions, which many saw as a clear case of conflict of interest.
Meanwhile, Mahendran said that due to the commitments, the EPF will have to subscribe to short-term securities instead of the higher yields of long term bonds. “They can’t have the luxury of investing in long term bonds which will give them 10-11 percent. They’ll have to invest in short-term securities paying half that yield,” he said. The EPF has invested around 90 percent of its portfolio in government securities, and around 5 percent in equity. (CW)