The Employees’ Provident Fund Organisation (EPFO) is weighing a proposed Rs 25,000-crore Interest Stabilisation Reserve, meant to shield the yearly interest earnings of its roughly 30 crore members from shocks tied to corporate bond defaults and losses from forced exits. Officials said both EPFO and the government are looking to build a more predictable system for its subscribers, one that avoids interest rates from making a sharp fall or spike due to market conditions or defaults.&nbsp;Under the rules currently in place, losses from downgraded securities and exit-related haircuts feed directly into EPFO's interest account, pulling down the annual interest rate to members. The idea stems from a proposal by IIM Kozhikode, which examined, among other things, whether setting up such a reserve was workable. That proposal was taken up in detail at a meeting of EPFO’s investment committee on Thursday.&nbsp;Also read: <a href="https://www.wionews.com/india-news/cyclone-arnab-odisha-shuts-schools-in-5-districts-andhra-pradesh-braces-for-landfall-bengal-on-rain-alert-1792992270732">Cyclone Arnab: Odisha shuts schools in 5 districts, Andhra Pradesh braces for landfall; Bengal on rain alert</a><h3>Investment framework</h3>This report has now been sent to a high-powered panel, which has been formed to examine the investment framework of the agency and recognise non-performing investments. The report also advised setting up the stabilisation reserve progressively from surplus ETF capital gains and excess interest income, and also investing it scrupulously in liquid govt securities (G-Secs). The move aims to ensure absolute capital safety, sovereign backing, immediate liquidity, and a risk-free yield, media reports suggest. The reserve won't just protect subscribers; it will also support active exit policies, enabling portfolio managers to execute disciplined, multi-year exits from troubled assets without second-guessing themselves. This recommendation reflects the ground realities of India’s over-the-counter corporate bond market, which is still thin and illiquid. As a result, when large institutional investors like EPFO need to offload distressed holdings, the lack of market depth tends to force steep haircuts on them.&nbsp;

Under the rules currently in place, losses from downgraded securities and exit-related haircuts feed directly into EPFO's interest account, pulling down the annual interest rate to members.

The Employees’ Provident Fund Organisation (EPFO) is weighing a proposed Rs 25,000-crore Interest Stabilisation Reserve, meant to shield the yearly interest earnings of its roughly 30 crore members from shocks tied to corporate bond defaults and losses from forced exits. Officials said both EPFO and the government are looking to build a more predictable system for its subscribers, one that avoids interest rates from making a sharp fall or spike due to market conditions or defaults. Under the rules currently in place, losses from downgraded securities and exit-related haircuts feed directly into EPFO's interest account, pulling down the annual interest rate to members. The idea stems from a proposal by IIM Kozhikode, which examined, among other things, whether setting up such a reserve was workable. That proposal was taken up in detail at a meeting of EPFO’s investment committee on Thursday. Also read: Cyclone Arnab: Odisha shuts schools in 5 districts, Andhra Pradesh braces for landfall; Bengal on rain alert Investment framework This report has now been sent to a high-powered panel, which has been formed to examine the investment framework of the agency and recognise non-performing investments. The report also advised setting up the stabilisation reserve progressively from surplus ETF capital gains and excess interest income, and also investing it scrupulously in liquid govt securities (G-Secs). The move aims to ensure absolute capital safety, sovereign backing, immediate liquidity, and a risk-free yield, media reports suggest. The reserve won't just protect subscribers; it will also support active exit policies, enabling portfolio managers to execute disciplined, multi-year exits from troubled assets without second-guessing themselves. This recommendation reflects the ground realities of India’s over-the-counter corporate bond market, which is still thin and illiquid. As a result, when large institutional investors like EPFO need to offload distressed holdings, the lack of market depth tends to force steep haircuts on them.

Under the rules currently in place, losses from downgraded securities and exit-related haircuts feed directly into EPFO's interest account, pulling down the annual interest rate to members.

EPFO weighs Rs 25,000-cr reserve to shield members from market shocks

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EPFO weighs Rs 25,000-cr reserve to shield members from market shocks