The Reserve Bank of India (RBI) has recommended a set of structural and strategic reforms to overhaul the investment and accounting framework of the Employees’ Provident Fund Organisation (EPFO). With assets exceeding ₹25 trillion, the EPFO is one of India’s largest fund managers, and the central bank’s recommendations aim to enhance returns, governance, and risk management practices for millions of subscribers.
RBI’s Advisory Follows Labour Ministry’s Request
Earlier this year, the Ministry of Labour and Employment approached the RBI to identify inefficiencies in EPFO’s fund management systems, risk controls, and accounting procedures. Responding to this, the central bank proposed measures to bolster investment oversight, establish stronger internal governance mechanisms, and mitigate conflicts of interest stemming from EPFO’s dual role as both fund manager and regulator.
Governance Gaps and Need for Expertise
EPFO currently manages three major funds — provident, pension, and insurance — but operates without an independent regulator. This structure, according to the Labour Ministry’s review, creates potential governance gaps and limits accountability.
The RBI’s advisory noted that the investment division and Central Board of Trustees (CBT) committees require deeper technical expertise in areas such as treasury operations, portfolio management, accounting, and actuarial science. Strengthening these competencies would enable better investment decisions and long-term sustainability of the fund.
Return Pressures and Asset Allocation Challenges
One of EPFO’s persistent challenges has been balancing attractive member returns with market realities. Despite average 10-year government bond yields hovering around 6.86% in FY25, the organisation declared an 8.25% interest rate for its subscribers — a gap often bridged through capital gains from equity investments.
Currently, EPFO’s investment mix includes 45–65% allocation to government securities, 20–45% to debt instruments, 5–15% to equities (mainly via index funds), and up to 5% to short-term debt instruments. The RBI’s inputs suggest reviewing this allocation to ensure long-term sustainability without compromising capital safety.
Rethinking Strategy Across Funds
The Labour Ministry has also sought advice on whether EPFO should adopt separate investment strategies for its three major funds — provident, pension, and insurance — instead of a unified approach. Additionally, discussions are underway to improve reinvestment practices for returns generated from exchange-traded funds (ETFs), with the goal of enhancing overall portfolio efficiency and returns.
Summary
The RBI has recommended a comprehensive reform plan for EPFO’s fund management, focusing on stronger governance, expert-led investment oversight, and a more nuanced strategy for asset allocation. With over ₹25 trillion under management, the proposed changes aim to ensure transparency, accountability, and sustainable returns for India’s workforce in the long term.
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