Exclusive: EPFO board to ratify extension of tenure for SBI MF, UTI MF

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The central board of trustees (CBT) of the Employees’ Provident Fund Organisation (EPFO) is set to ratify an extension of tenure of SBI Mutual Fund and UTI Mutual Fund as its “ETF manufacturer”. The move comes as the process of selecting other possible funds for managing its exchange-traded fund or ETF corpus through a public bidding process is still languishing, two years after it was proposed.

When the central board meets on November 20, the labour ministry-run EPFO will present the case for ratification of the extension of tenure. It has already got the go-ahead from the Union labour and employment minister, who is also the chairman of the CBT.

The extension ratification is for six months to December 31. “As no CBT meeting was scheduled in the near future, a proposal was placed before the chairman CBT to extend the tenure of ETF manufacturers up to 31st December 2021, or till the date of appointment of ETF manufacturers as the case may be, whichever is earlier,” reads the EPFO document that will be placed before the board soon.

“The proposal was approved by the chairman CBT… Accordingly the approval of chairman is placed before the central board for ratification,” underlined official documents accessed by Moneycontrol.

This will be at least the fourth extension given to the SBI Mutual Fund and UTI Mutual Fund as its ETF manufacturers after an internal committee recommended in 2019 to choose new ETF managers through competitive bidding, as per documents reviewed by Moneycontrol. The document will be presented to the board on Saturday. The fund houses have been informed about the minister’s decision and CBT meet.

The EPFO started investing in the stock market via Sensex 30 and Nifty 50 indices and SBI Mutual Fund was its first choice. Subsequently, UTI Mutual Fund was roped in to manage a portion of the EPFO’s ETF corpus.

The finance investment and audit committee at its meeting held on April 30, 2019, had recommended selecting new managers through a “public bidding process”.

“It is pertinent to mention that both SBI MF and UTI MF have been selected through the nomination process. As per the CVC (Central Vigilance Commission) guidelines, awarding a contract through nomination process should generally be avoided for providing a level playing field to bidders and bringing transparency,” said another document prepared by the EPFO in August 2019.

As per an internal assessment, at least eight funds can fulfil the EPFO’s key criteria for managing ETFs barring the fact that they are not owned by the government in part or full. Also, the internal assessment is that “some of the ETF manufacturers are charging lower expenses ratio… The bidding process is, therefore, expected to bring down the expense ratio on ETF investments as well,” the 2019 documents said.

At the end of the 2020-21 financial year, SBI MF was managing a net equity investment of Rs 86,577.51 crore for the EPFO and UTI MF was managing a net investment of Rs 26,401.33 crore.

As of March 31, 2021, the EPFO corpus invested by SBI Mutual Fund in ETFs mimicking the Nifty 50 and Sensex 30 indices has given the retirement fund manager a return of 15.76 percent. The corpus managed by UTI MF on its part has fetched an even better annualised return of 16.37 percent, the EPFO has calculated.