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EPF investments in the stock market

2014 Jun 04

The 2011 annual report of the trillion rupee superannuation fund, the Employees Provident Fund (EPF), was submitted to Parliament on Wednesday, 21 May 2014, following many allegations of its monies being invested in unwise ventures incurring heavy losses affecting the stakeholders, the working people. The allegations centred on the investments made in loss making institutions in the stock market, with the delay in the submission of the annual reports confirming the speculation that there was something amiss in the administration of the Fund.
The comments of the Auditor General on the 2011 accounts of the fund, that the investments made in the stock market have not been transparent, confirm the fears of the public that the fund has not been administrated properly and that those entrusted with its administration and supervision have been lax in their judgement in investing the monies in the fund. In fact, for a very long time there has been speculation that the money in the fund was being invested in unwise ventures that would not yield the maximum benefits to the people for whose benefit the fund was set up, and the comments of the Auditor General go to confirm this thinking.
The superintendent of the fund had recently, in a lengthy article, explained that the fund had earned large profits and that its track record has been exemplary and commendable. He has gone on to say that the EPF was the biggest profit earning entity in the country and had in the five years from 2009 to 2013 earned a total profit of Rs 558 billion. It is a good article and makes interesting reading. But is that the real situation?
The overbearing factor would be, whether the yield was commensurate with the investments made. Even if we go by the face value of the superintendent's lengthy article and accept the facts given by him as correct, the same argument would apply to the rates of return as mentioned therein. Since, as the superintendent says 'the impressive rates of return' had been declared on the 'profits earned by the Fund', one could always ask why the rate of return has dwindled from 13.75% in 2009 to 11% in 2013. The rates being substantially above the interest rates applicable to normal deposits in the financial market is not the point. We do not ask this to discredit the superintendent or to criticize his article. It is just the question that any prudent man would ask.
Many of the recent investments made in the stock market using EPF money had come under criticism by financial analysts as well as stakeholders in that they were not prudent investments, but had been done with ulterior motives, which concerns have been dismissed by the authorities as unreasonable and politically motivated. Instead of presenting the annual reports to Parliament, they have been harping on the excuse that the statement of accounts of the fund for the three years had been published in the national newspapers and faulted those who raised concerns, for not accepting the statement of accounts published in the newspapers.
It is the delay in presenting the annual reports for the years 2011 to 2013 that gave rise to speculation that something was amiss in the affairs of the Fund.
The Auditor General has further pointed out that investments made in 58 private companies in 2011 had incurred a loss of Rs 1,173 million making real the concerns expressed by many in relation to the investment of EPF monies in the stock market. We wonder whether the authorities would still maintain their stance that the investments were prudent and fault the Auditor General for the unfavourable comments.
The annual reports of the Fund for 2012 and 2013 too may contain many surprises for the public, and the public wait with bated breath till they are submitted to Parliament and become available for public scrutiny.

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