EPFO: Performance-Linked Incentives for Fund Managers Soon
EPFO Plans Revamp of Investment Benchmarks, May Reward Better Returns
The Employees’ Provident Fund Organisation (EPFO) is considering a major overhaul of its investment framework, including a proposal to introduce performance-linked incentives for fund managers, a move aimed at rewarding better returns with higher fund allocations.
According to officials, the proposal is part of a new benchmark methodology being designed for EPFO’s debt investments. Under the revised system, fund managers who consistently deliver superior performance could be entrusted with a larger share of the organisation’s portfolio.
As part of this exercise, the EPFO is also reassessing benchmarks for both the Employees’ Provident Fund (EPF) and the Employees’ Pension Scheme (EPS). The pension scheme, in particular, is being evaluated separately due to its significantly longer investment horizon.
Officials explained that the earlier benchmark relied on a tenor-weighted portfolio yield. The new framework, however, separates the investment tenor from portfolio yield, allowing for a clearer assessment of performance. A key addition to the revised benchmark is a clause linking portfolio allocation directly to a fund manager’s returns.
The EPFO’s Investment Committee (IC), which oversees assets of nearly ₹30 lakh crore, is expected to take up these proposals at its meeting scheduled for February 10. The discussions come just weeks before the organisation announces the annual interest rate for its close to 30 crore subscribers for the financial year ending March 31.
In parallel, the retirement fund body is exploring opportunities to widen its investment universe. In earlier meetings, consultancy firm Crisil was tasked with studying the feasibility of deploying funds into emerging and sunrise sectors such as rare earths, railways, and defence.
Crisil has also evaluated a range of sectoral and thematic indices, including those tracking banking and financial services, information technology, FMCG, and global markets. Additionally, it examined factor- and style-based indices—such as momentum, value, and low-volatility strategies—and ranked them based on risk-adjusted returns.
These initiatives form part of a broader consultation process within the EPFO as it seeks to diversify its equity exposure beyond exchange-traded funds linked to benchmark indices like the Nifty and Sensex. The objective is to enhance long-term returns, especially at a time when EPFO has been declaring interest rates that exceed prevailing government bond yields.
