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AVENUE: i

Conference HaU,3rd, riOOr, EPFO( Head Office), A

Bhavishya Nidhi Bhawan,•14, Bhikaiji Cama Place, ~

NEW DELHI - 110066.

119th Meeting of the

FINANCE INVESTMENT AND AUDITCOMMITTEE

[A SUB- COMMITTEE OF THE CENTRAL BOARD OF TRUSTEES,EMPLOYEES' PROVIDENT FUND]

26.03.2015 at 11:00 A.M.

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.EMPLOYEES' PROVIDENT FUND ORGANISATION

AGENDA BOOK119th Meeting of the Finance Investment and Audit Committee,

CST, EPF

Date: 26.03.2015 INDEX OF ITEMS Time: 11:00 A.M ..

ItemNo. Agenda PageNo.

1. Confirmation of the Minutes of 117th & 118 Meeting

I ~~OFinance Investment & Audit Committee (RAC") held on20.1.2015

2. Action taken report on the recommendation of the 117th

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Item No.1: Confirmation of the Minutes of 117tI'J&. 11SthMeeting of the Finance Investment and AuditCommittee· held on 20.01.2015 at EPFOHeadquarter, New Delhi

Minutes of 117th & 11Sth Finance Investment and Audit

C Committee meeting hetd on 20.01.2015 was circulated vide letter No.~ : : _ _ .._lnvest.1/(117th & 11SthMtg. )FIAC/2014-15/17005 dated 09.02.2015.

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Copies of the minutes are enclosed as Annexure -1 of this item.

Minutes may be taken as confirmed.

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AN~/2.)OvIU2-1 ~~ rt~ No. tMinutes of the 117th and 11SthMeetings of Finance Investment &Audit Committee ~IAC) held in continuation on 20.01.20~5from

01:30 P.M. onwards.

---) 1. The 117th and 11Sth Meetings of Finance Investment & Audit Committee were held in

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3. The Agenda' ,;,.se di~ussions for the respectiveFla.C ~eeti~gs\:::-::' _1;.-:t~?r~- _~:l:"_ ~.7: ,'- - '" :.:/~

recorded~16w:' ,.,. - , "" -. -,:::.-~~;':-~~~-;-'~L;~~':~~. :~~.. ::~:,:;.':-:"~ -, '~~t'1f~,-~ :~: "T~~?~;.,.:.:,~':;f:~

Th'~~OiJl)Wingmembers we•.epreseiitiD thi~!~l'~;,; ..... ....... ' _, " _,,;1/:'2,_,;,,_ _. __, '>' .

2 .MS:Meenakshi Gupta ;~oint .-·-Secr~fary& : Financial Advisor, Ministry of-, Labour and Employment, Govt. of India.

3 Dr, G. Sanjeeva Reddy, MeJ.llJler,,-,9BT;EPF (Employees ' Representative)

4 Shri J. P. Chowdhary Member, CBT, EPF (Employers' Representative)--

The following members could not attend the meetings:-"':'-' ..

1 Sh. Deepak Kumar Additional Secretary, Ministry of Labour andEmployment, Govt. of India.

2 Dr. Ram S. Tarneja Member, CBT, EPF (Employers' Representative)

3. S-hriPrabhakar J. Banasure Member, CBT; EPF (Employees' Representative) --

4. Shri Anup Wadhawan Joint Secretary, OFS-,Ministry of Finance(Domain Expert)

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The list of officers of EPFO and the Consultant's representatives present during the respective Cimeetings is placed as Annexure' A'. ,(",

I. The meeting started With CRISIL's presentation on the status of deviations \ .-

discussed during'tl1e Pre-Qualificatiorrbid held on January 09,2015. The C,decision taken by FlAC on the deviations is summarized beIO\~: C:

Minutes of 117th meeting of Finance Investment & Audit Committee (FIAC), .

"'''''''''''''it~~'N~':i:'''''''''''(5~~fi~~~~''ati~~'o(tbeMinut~s~;9f'~c1l§th Me_~ting·of tbe Finance Investment:.-_~,::;;_~t~r~=:":, ~~'t',r~Y1'!i~-4'.i'~~f~~: .:"7?, '".:

and Audit~.omiU.ittee beld·f~9iii~(),9:0)..2015iregarding - Opening of financialbid. ,of bidd~~~~~~asliii4fffi~~t~~tiii~a[,sti~e'?i~:~"apPointment of Portfolio.Mart~ge.l"s,..a~d;ftirther aetionthereon, . ,.' '~:' ..:~- '

.•.,~.' -~:-., " Investment Aud~t¢~fiimi~f~~'~eld,:6n09~01.2015

Action taken reportasplaced was taken note of by the Committee.

Item No3: Opening of;'FinimCi.al bid ofbitl~ers successful in technical stage andfurther actio.) tb~reoit for Appoi~t~ent of Portfolie Managers by EPFO.

Decision taken byFlAC

Applicant Deviation in Pre-.Qualification bid

Status of Deviation

Birla SunLife AMC

• The .Applicant . wasasked .,to re-submit

, the '-' fallowingdocuments by 5 pmon January 14,2015:

1. Affidavit as per therequired format

2. 2 copies of CDs ofthe proposal

3. Undertaking as perthe required format

• Status: FIAC decided tot> The Affidavit as consider the" per the required Applicant

format was Technicalsubmitted withinthe stipulated time' evaluation. The'

2. The Applicant also Applicant was askedsubmitted the 2 to submit a copy ofcopies of CDs, but undertaking by FAXwithout the or e-mail immediatelyrequired excel files on January 20, 2015

L3. The Undertaking and submit the

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for "bid

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Deviation in Pre-Qualification bid

of DeviationApplicant Decision taken byFIAC

had not beensubmitted by theApplicant

original within 2days. The Applicantsubsequentlysubmitted a scannedcopy of theundertaking duringthe meeting. Theoriginal copy wassubmitted on January(••••~~j{~~V 4.

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During . "..Qua1ificatioIl.Bid~"·,·~f'ihe."lS

2. CRISIL informed that the Technical bids of all the 6 Applicants who qualified

the Pre-Qualification bid held on January 09, 2015 had been evaluated.

CRISIL also highlighted that Axis AMC had been disqualified in the Pre-

Qualification evaluation since it did not meet the minimum required assets

Wider management ofRs. 15,000 cr. In debt funds. It was further stated that

.................···································llie·TeCllriiciirbiffoi"·SfaTe-;R~~K~l~Jndia(SBl) was not evaluated since it had

been appQiht~~bominaitd&f~i~1t f!~i·,.,'c;;_.,3.,~no~".s ~~~;~i~~d¥'.~·TechniCal bidevaluation

..;;d.w~r~;,~£¢st·higl1!i~~e4.,·fgr: consideration ,by FlAG. The decisions taken by""_:-~,_;,,,:-',',-.t;~~~-,:· ~ ~:;

FIAC on the ohsen,ations are summarized as follows:

FlAC decidedtoc()n.sider theApplicant'sTechnical bidin view of therelevantcontent ofRFPwhich wasbrought to the.considerationofFIAC by theconsultant.

Birla SunLifeAMC

Decision taken,;·byFIAC

: .....'The ;':;;,''':rechnical bid '-~,iC19SIL has yetCompany )ncl\!ding allthe . ". evaluated theseal and ·i~fonnation,'as,laid·... ApPU~ant'ssignature are down in Section 8.3,;: Technical bid.missing in duly filled in alongseveral ' with allsectionsof' .'0 attachments/schedulethesduly completedanddocument,' with a covering ,except' ,.••.•....Jetter, as per the .." ' ..shareholding 'format defined inpattern and Section 9.2, signedprofile of by the authorized

""'ooard of representative of thedirectors. Applicant.Name of (Company seal andauthpriz~lr" .authorized signatorysignatory'. were required inand covering letter)companyseal are .missmg incovenngletter Thesignature oftheauthorizedsignatory is~-- ~ ~_~_~~_~ ~ i- ~. ~

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Relevant contentfromRFP Recommendation

Decision takenbyFIAC

howeverresent.

Birla SunLifeAMC

8..3.3.4 The Parent support andcontribution quality-ofBSLAMC Commonality ofto the overall business,group .Contrib '">0,.bottomJm"; ;:pverall ,"

~ , ; f ".;;%;~H~i1[~~~~~Ai)~f"iliattheApplicanthas .considered ,.'L.

IAMC .. .missmg mall pages ofthe

Decision taken,Recommendation by FIAC

document attachments/scheduleexcept s duly completed and..................·····················E.;E::j!l[,'signatory;",~t ,:Section 9.2, sigried">' ~.•;':,;ic"'~",;i2;"/""rtatne'tttiif"'" " by the aUtfipnzed .' '~rSignatureare; ~epiestfntaiiV:eof th~ ,'present. , Applicant.Company (Company seal and

:!:~gini~~_tl~ithe covering'r-coveringj~tierJ"~ ~~:letter "C'" , ,The RFP had ','Assets 'Under "OC,requested for "Mariag~tne:tt(APM)-.Average oflong t~rihdebt' ,,_Assets Portfoliil's "",,',".j;'Under Tota:ras~tS'ln~agedManagement (excluding'tenrementfor the last, funds)(owned funds12 quarters, and' non-owned fundsin case of , separatdY}2-::; "Long term quarterly'ayerage()fDebt daily asset underportfolios. management for allThe long term debtApplicant portfolios for 3 yearshas reported ,(from quarter endedthe required Decemb~r20 11 todata for all quartereli~¢(t·the 12 September2014). -quarters. Long term debtHowever, it portfoliosdid notreport theaverage ufthe 12quarters.(given asL----...L--_--'--'-=--'---"'-c'--------' .L.....~ ~_. _

Applicant Clausein RFP Observation

Relevant contentfromRFP

signature is information, as laiddown in Section 8.3,duly filled in alongwith all

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Applicant'sTechnical bidin view of therelevantcontent of RFPwhich wasbrought to theconsiderationof FIAC by the

calculated theaverage for the. last 12 quartersbased on the dataprovided by theApplicant.As per dataavailable inpublic domain(AMFI website),'the above numbershould be.Rs.5,379.27 cr. Thedifference:amounts tounderstatementby Rs. 12.34 cr.The calculationsas per thereported data (Rs.5366.93 cr.) by .the Applicant, beused.

Flf\C approvedthe.recommendation.,TheApplicant'srepresentative, accepted the,"recommendation and gave anundertaking forthe same.

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blank in theTechnical

8.3.1.4 The RFP had Long term debtrequested for portfolios areAverage portfolios (excludingasset

ICICIPrudentialAMC

8.3.3.5 .

CRISIL has re-calculated the

FIAC approvedtherecommendation. TheApplicant's

considereddebtportfolioswhich doqualify as"""long-termdebtportfolios,The point-to-pointreturn hasbeen given·2.17%.

FIAC

data, whichIS

Hybrid funds arenot beingconsidered for theRFP evaluation.......-.---..-.~=~.--- the

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Applicant ClauseinRFP Recommendation

DecisionbyFIAC'Observation

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Experience inmanaging retirementfund of non ownedfunds:

FIAC approvedtherecommendation.TheApplicant'srepresentativeaccepted therecommendation and gave an

for

FIAC approvedtherecommendation. TheApplicant'srepresentativeaccepted therecommendation.

8.3.1.1 TheApplicanthas reported78 months of

~ managementof hybridfunds under :(f}~~l~~(JI.p~NationalPensionSystem.

experience ofmanaging non-owned retirementfunds (Schemes Cand G under theNPS,havinginception date ofMay2l, 2009) ason September 30,2014. This .number be used

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HSBCAMC

Experience inmanaging retirementfund of non ownedfunds:Experience in

Recommendation

The reportednumber bereduced by 2 -months to reflectthe experience ason September 30,

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Relevant contentfromRFP

.experience as'September 30,

2014fThisnumber-(94months) be usedafter informingtbeApplicant,

Decision takenbyFIAC

FIAC approvedtherecommendation.TheApplicant'srepresentativeaccepted therecommendatio

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FIA.,c'approvedthe'.'recommendation.TheApplicant'srepresentativeaccepted therecommendationand gave anundertaking forthe same.

Observation

experieIlc~,. -." .- ...•,.'. -'.mmana~JJ1g innon-o~(f.:> of monthsretirem~p:t""., ,details such ..,funds until' as Name ofth~'tmid<December, -partie~f()r'Whomthe

. 2014 (97 retirementfunds.aremonths) being managed, The

fund managementexperience for non-owned and ownedfunds 'must be clearlyindicated.

8.3.1.2 Assets UnderManagement (AUM)of retirement fundportfolios:Total retirementassets managed(owned funds andnon-owned fundsseparately) -quarterly average ofdaily assets under

I-See PD TheRFP'hadrequestedforAverageassets underManagementin case ofRetirementfunds. TheApplicanthas reportedthe average

The number asper the requiredformula has beencalculated usingthe Applicant'sdata. The revisedno. (Rs.22,753.14 cr.) beused after 'informing theApplicant.

FlAC approvedtherecommendation. TheApplicant'srepresentativeaccepted the -recommendation and gave anundertaking for

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Relevant content Decision takenApplicant Clause Observation Recommendation byFIAC rinRFP fromRFPAUMof management for all the same.

t:retirement retirement portfolios Cfund for 3 years(from

Cportfolios as quarter endedRs.23,832.2 December 2011 to

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quarterly(total AUM.

Reliance. 8.3.1.1 The ExpepenceiIl'~" reported (-number beAMC Applicant managing r~~ement:. the Chas reported .. fund of noli6Wilecf reduced by 3 recommendatioexperience funds: months to reflect n. Tl)e (in managing Experience in the experience as

non-owned number of months .September 30, .A:ppl~cant's (.retirement and the details such 2014. This representative

(funds until as Name of the third number (66 accepted theDecember, parties for whom the months) be used recommendatio (4 (69 retirement funds are after informing n and gave anmonths) being.managed, The the Applicant; undertaking for l.fund management

the same. Lexperlence.forsnon-« ..•.··•owned"~dO'~ed .

(.funds must be clearlyindicated lReliance 8.3.1.3 The Average Assets Under The lower FIAC approved

(.AMC Assets Management (AUM) number (Rs. theUnder of long term debt 6,925.64 cr.) be recommendatio LManagement portfolios used aftern. Thefor Long Total assets managed informing the I.•..

term Debt (excluding retirement Applicant. Applicant'srtfolios fund funds representative

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CRISIL also informed the FIACthat asset weighted purchase yield of HTMportfolios could not be verified by CRISIL using publicly available data. It wasfurther informed by CRlS.IL that as per the terms of RFP document, there is noprovision for third party verification of the information and the data submitted bythe bidders. However, as a matter of abundant pre-caution and to introduce higher.level of comfort in the reliability in the data provided by the bidders, data relatingto bidders who are maintaining the funds on Marked-to-Market (MTM) basis wasverified from the periodical information submitted by such Portfolio Managers in-public domain. Similarly, the data related to bidders who are maintaining funds onHeld-till-Maiiiriij' . "Wi'tll"tneaatii available withCRISIL. The bidders was in line with the

~:c:~rlff~~~~~~;~fi~t~~'l~lJ~~~~*~,j~~lm~~:!at technical score forV~ the FIAC and all thebythe~ CRISIL is as per

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CR1S1L further informed that in any case EPFO has the"ppWer to cancel theservices of the Portfol!?"~~Cigers,:ifit ..,comes to itsnoticefth~tanY of the. information submitted'1:)Y'ili~j)raaef.:rsinc'6rrect.' ";;.,(\

. i~.'~~:~-~\.~;Jc:::/:~::,-:-::--:,,7:5:f.:~:'~:,;\:~?1~~i/:;-"'~-r~~:)f;}::::::?:' :~-::> .. .":.:":-"'''~--~Considering the,1&jve:"FL~C decided to'~oaHead with the opening of financialbids in respecrof the qualified Bidders. '

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4. It wasinformed byCRIS1L t1\;'1all the Applicants had Scoredabove 65% in. -, .'..:::'." .- '--,' '- .. ';- ... ;

Technical bid, Based on this,FIAC decidedto open the Financial bids of all

the 6 Applicants, '

5. The Financial bids were opene~ in ~epresence of the Authorised

representatives fro~ the Applicants.' The bids of the 6 Applicants were

announced as below:"

Applicant Financial bid (in%);;; '.

BirlaSun Life AM.C "', 9.05,

HSBCAMC 0.0043'. "

ICICI Prudential AMC...

0.0061

. l-Sec PD 0.0000000005

Reliance AMC . 0.00009UTI AMC 0.0025

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The Finaacial hid submitted by SBI was placed before the FIAC. In responseto the appointment of SBI as portfolio manager for the EPFO corpus on

nomination basis, the FIAC recommended to place the bid before the Central

Board of Trustees (CBT) for fmal decision.

6. The Applicants were asked to vacate the room after the announcement of the

Financial bids. CRISIL was thereafter asked to evaluate the composite scores

1A~,,~c()resin Technical bid (80% weight) and

Applicant FinalRank

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. 1. FIAC recommendedth~!tb~.:resvltsof the evaluation may be placed before

the CBT for fimildeCisioh.

lItem No.1: Action Taken Report oD.tbe recommendations of the 115th Finance

Investment Audit Committee held on 11.11.2014.

Action taken report as placed was taken note of by the Committee.

Item No.2: Confirmation of the Minutes of 117th Meeting of the Finance Investmentand Audit Committee held on 20.01.2015 Regarding - Opening of financial

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bid of' bidders successful in technical stage for appointment of PortfolioManagers, and further action thereon.

Since the minutes of both 117th & 118th meetings have been compiled together,the same shall be placed for confirmation together in thenext meeting ofFIAC.

Item No.3:and any further action

1\17th & 118tH meetings ~~;J)¢~:lr~10m1p1H:~

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. opening balance in the following year. Thus, it may not be possible to bifurcatethe consolidated amount into contribution and interest credited every yearparticularly in view of the fact that account prior to 2010 was being maintainedmanually.

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JS & FA of the Ministry also highlighted that many audit observationsparticularly regarding non disclosures and inadequate disclosures are due to nonadherence to Uniform Format of Accounts as prescribed by the CAG. Asthese

nr~1r1nn to double entry accountingadhered. It was

'.,"' ?'fti "l'«uenberanon; the FlAC recommended .that' the f\UCJn:~:U"/\llIIUaJAccounts

placed before

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dfEPFOf6r,·the year 2013-14 in respect of all three scnemes>.,".'.'+"~ e~u~g meeting .fExec\ltiY~l:~QlUJllittee~CBT, EPF,

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The actuarial findings are in essence the Net Present Value of all the anticipatedincome and expenditure streams of the Fund taking into consideration all themembers and beneficiaries of the fund as on the date of valuation. The variouselements constituting the income and expenditure streams and the actuarialassumptions applied to these were as under:Income Streams(a) Value of Future Contributions: The incomes from all future contributions in

respect of the existing contributing, members are assessed. The contributionsare dependent. upon .~~. (

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year variation in the key data elements available for valuation is given in thetable below:

Year on Year Variation on Key Data Elements in ActuarialValuation

3L03.2010 31.03.2011Particulars 3L03.2012

3,27,66,321

25.57

crores)

Y-o-Y 13.89

The degree of reliability and the reasons for variation in the key elements ofdata for actuarial valuation are as below:,(aJPens.ioners Data: This data-is provided as per~i1ity~accut~cyisquite high.

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(b) Data on Accumu}ategCorpus: Thisinformation is as per actuals and basedon the books of accounts and the degree of reliability and accuracy of thisdata is quite high.

(c) Data of Active Members: Major improvements in the quality and accuracyof this. data have been achieved over a period of time. Through a specialdrive using a web-based tool for employers details of active members havebeen collected to the extent of almost 80%. With introduction UAN therewill be further improvements. From the figures for variation it can be seen

171Page

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that 'there was a drop of 7% in active members between 2010-11 and asudden spurt of 25% between 2011-12, the possible reason for whichcould be attributed to the implementation of computerization in the year2010-11 due to which many acc~unts were in the phase of transition fromone system to the new system and could not be properly reflected. Thissituation is corrected from 2012 onwards when the new system startedstabilizing. At present the active members data is reported from the onlineECR based system payment collection system from the actual member-wise contrib .ons are rm······ ':ancftlle"data'ls'accurate"to"alilgb"degree:'-""-'"-_ ..

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(d) Data'~'~ ~,M~J?~ers~"'~-'~~~~~fctrho have inall probabilityt11~ftemIL>. and this data is the·~,.=~.~

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ANNEXURE' A'

EPFO Officers Present during 117'" FIAC Meeting:

1. Sh. Sanjay Kumar - Financial Advisor and Chief Accounts Officer2. .Sh, Abhay Ranjan - Regional P F Commissioner, Grade I, !MC3. Sh. Vishal Agarwal- Regional P F Commissioner, Grade II, IMC4. Sh. Ajay Kumar - Regional P F Commissioner, Grade II, IMC5. Sh. Amul Raj Singh - Regional P F II, IMA

1. Sh. ~anlaeet'f:::2.3.4.

·,s';if~~'1~,_,.", ."e •.••. 'nn;;: ••••·_••Present duriIlgFli8~h.FlAC Meeting:

1. &luj.,siffijayKumar, FA ~,PAQ~IErFOi'Head'()fiic~";~~,,3~2. SWt;:A.~hay'Ranjan, RPlfC=l {iMCj,EPr.Q)Jt~al(Qffic~· r3. ~hii~jay Kumar, RPfG';l(FA.);'J~Pf'OtHe~

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Item No 2: Action Taken Statement on the minutes of 117th & 118meeting of Finance Investment and Committee (FIAC)held on 20.01.2015 •

Action Taken ReportAgendaItem no.

'Itemno.3 Opening of Financial bids of bidders As per the decision, the'o~ , ~~~~~~g:IJ.LJn.teChni.caL..stage ,and--~-reeemrnendatlons of FIAC'11~ further action thereon for were ptaced before 206thFIAC Appointment of Portfotib Managers Meeting of CBT held on

by EPFO. ' 11.03.2015.

The Consultant, MIs. CRI5IL madea presentation before theCommittee on the status ofdeviations discussed during the Pr~-Quatification bid held on' January09, 2015 and the decision taken byFIAC on the deviations. The CRI5ILinformed that all the & Applicantshad scored above 65% in the.Technical bid. Based on. this, RAe '.decided to open the Financiat bidsof alt 6 Applicants. After evatuationof Technical bids and Financial bids, ..the Committee recommended· thefollowing bidders in the below

"ranking to' theB6ard for finaldecision:

51. Applicant RankingNo.r. ICICI See.PD Ltd 12. ,RelianceCapital AML 23. H5BCAM(' 34. UTIAMC 45. 1(IC1Pru.AMC '56.

0Birla 5un Life 6

(Item no. 3 of 117th FIAC)

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Itemno.3of11SthFIAC

To take necessary decision pursuantto the outcome" of the 117th FIACmeeting and to recommendaccordingly to the CST and anyfurther action thereupon.

Since the minutes of both 117th &11Sth meetings have been compliedtogether, the minutes" of this Itemmay be read same as that of ItemNo.3 of 117th FIAC meeting asnarrated above.

The action taken for this item ('may be read same as above catSI. No. 1.

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I-----t------~---~---.:t__---------_t(Audited Annual Accounts in respect of The consolidated AnnualEmployees.'Provident Fund Scheme, Accounts of the Organisaiton C1952, Employees' Pension Scheme, for the year 2013-14 were (1995 and Employees' Deposit Linked pJacedbefore the ExecutiveInsurance Scheme/ 1976 for the Committee, CBT in its 81st (-financial year Z013~14 " """""""~tin.g .heldon 17.02.2015

(Item no.4 of 11Sth FIAC)

Itemno. 4 of11SthFIAC

Further, the FIAC decided that its.recomrnendattons may be placedbefore the next meeting of CST forconsideration.

(Item no.3 of 11SthFIAC)

Itemno. 5of11SthFIAC"

View of the CBT,EPFon the _14th,15th Combined Actuarial report for& 16th (Combined) Valuation Report 14th/15th and 16th valuation ~of the Employees'Pension Fund as on for" the period 31.03.2010,31.03.2012 - Report submitted by 31.03.2011 and 31.03.2012 (K.A. Panrnt, Consultants & Actuaries/ .was placed for consideration· \the Valuer, appointed by-the"' Central of the CBT, EPF in its 266thGovernment. : ". . _ rneetmq held on :1~.03.2015, (

. "" " " -, the" -report' "have'" been"(Item no. 5 of 11SthFIAC) accepted by the CST,EPF.

~----~------------------~--------------~\

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Item no 3: - NewPattern of Investment notified by Ministry of Financeon 02nd March, 2015.

1. Ministry of Finance had issued Investment pattern for Non Government

Provident Funds, Superannuation Funds.and Gratuity Funds vide notification no.

288 dated 14/08/2008.

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This pattern was discussed in various meeting of Central Board of Trustees i.e.

187th, 188th, 189th, 190th ~ 19:rt meeting. Finally, the Board in its 201st

Meeting held on 25.02.2013 decided to recommend adoption of 2008 pattern of

Investment of Ministry of Finance,Government of India to Ministry of Labour &

Employment (MoL&E) without investment in equity. The MoL&Evide notification

no 3450 (E) dated 21.11.2013 notified the samefor investments by EPFO

(copy enclosed as Annexure 'A'). The same is being presently followed by_ •• a

EPFOfor its investments w.eJ. 0151: .January,2014.:'

Now, the Ministry ot Finance in partial mOdification ot its earner InvestmentPattern dated 14th August. 2008, notified a new -Investment Pattern on 2nd

March, 2015 vides notification dated 02rxt March, 2015 for Non Government

Provident Funds, Superennuatlon Funds and Gratuity' Funds with effect from 151:

April. 2015 (copy enclosed as.Annexure '0').

A comparative Gist on the 2013 Pattern of I,:"vestment notified by Ministry of ''MOL&{ On 21StNovember, '2013 arid' 2015 Pattern of Investment" notified b)i - :" -MoFon --r March, 2015 is placedas Annexure 'C'.An item on the matter was placed before CBT, EPFin its 206th Meetingheld on11.03.2015. The Board. deoded to refer the item to FIAC for detailed

examination and recommendation to the Board.

ThenewPattern of Inve~ment notified byMinistry;'f Finance'on'orl-March, 2015 is placed before the FIAC for perusal andrecommendationto theBoard.

~yor'~AND!;MPtO~·..~

. NewDtJbii"tbcZislNoYcmw, :2013., ..... - .. "" ... "

AYrn~"C;~p ~t-~No~3 --

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C (if .:.(~)~~:~udiiesl. : Upio5S.C '(b)~Oih~·s~G~rhICilIl .llltp~ln~lpal}vhcfCOr .a.~c;I.t~==::e:~~utJ:~=uncoJ\di6oJ\41'JYq.... ~~*~=~~ ..._._..._w•••.d ._-.---......;'-''':''"-,-"- -... : _._..__ __ :Ooan~~~~~io il,mUiuaifuid#W!llOlbc:JJi(Q ~~Ofthc;1I)W.~li9

(; (n):c~~~~~#~~~=:t:;a;s~·iisuedW~~..·..· upao35 ·..· ··..· ·..· -· .-.. ,C .:;r!r::!y=11:::~:t::~ie!:=~;,~inlmitroments

(b) Teim,Dep05ia.::Remptsof notJi:ss than oneyeat'durIliOD,issucd.by sc1aeduled~biinb.

.Provldedlbatthe sCheduled commercial baJW must meet conditiomof;

(i) CQnunuolIs:piOfitabiUl).forimmediatelypn:cedingtbrec years:

(0) M8inwning.arninimum Capital ,c>lUSkWeighli.dAssel,sRatio of~;

(jjj)Havingnel no.-pctfOnmngllSSeti or not IJK)RtlIan 2'JI ohhc netadv~;

(iv) Having arWililllUIJiDCIWorthof not Jess thaoRs. 2OI>crores..:.~Ru~B()~~vin,ganouJ,StandinglDaturityoral~3~;iss~edbt1mlilutions'oftheilnWnliuOi)il'JianJc for·Reconitruclio" IIIIdDev.clOpment..In~ FinanceCbrpo~nllDiSwck;J!:idWi~O(equitylinkcd3tliemeOf.mutual·fimdsKplJiittdb)'IbeScctiiiia.ai)dBit¢~g~;~onJidia.

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GovemD)eot~rilics"as defined in Sediori2(b)of&hc SeCurities(!OJltracts (Regulation).. Actil956.

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.PubJicFinnncial Inktitutions' as specified ~sectioiQ4A oftheoom))a4lieaAct. 1956.

A.ny rilQncysreceived on the maturity of ~ invi:stiDents rcduccd by obJiptoryo))tgoi,ngsJuillbeiovcs1ed ioumc category.

Tumov"1tatio{~vaJucorSecuritel badcdiatbe'carlaVCf8lc Yalue oftJH: por1fo)io attbe beginning oftbe year and the mdofthejCu>_hould DOl I:.lK:eCd 2.

lfanyoftheinstrumeDlsmentionedabovcueJ8ledaodthcirmingfallsbClowinvestmentgrade as ~nfirintd by oDC c;Jeditrating apjlhcA. theoptioqofexit~bc cxcrclsed.

. The lnvestmenlpattemas eavisaged ~ve ma, kacWevtdb,y me CDdoftbc fUWlCiAlyear. Howover any volalility re-llaJanclngaltbe CIldof~Jear may be avoided..

llmay be DOled, however, that tbe.iDvestmelJtOfthc FuIxJ.of. 'fruit is1ho- FMIuciaJyrespQnSibili~of me TruStees and DUds to ~ exaciJedwitll !lppq>iiitte.dUe~Therefore, a.s such, the trustecsue so)cly JeSJlOIIIibJe for theiol'UbDtDt decisions takenin accordane wilh Ihe pattern of invesnnenl apecified above.

{PoNo. ~20031/l12OO7lSS-n(\bI.IJ))

ARUN KUMAR SINHA, Add)" Secy,

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To be published. in the Gazette of India. Extraordinary Part 1 -Section 1

Government of India

M1N1STRY OF FINANCE(Departmentiof Financial Services)

NOTIFICATION '

C New Delhi.fhe r- March, 2()1SC F. No. 111l4J2(}}3 -PR.-- In partial modification of this Ministry's Notification No.

'·C················..············~~!~:~~~~~~~l~:···~~~~~·~~~Jin~t:i·~~~;::n·::··;~a:~~:~:/~dst~~~~~e.~C follows, effective from' 1s1 April,20}5:-cccc(

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Category INVESTMENT PATTERN ------rPercentage; amount to1be invested

(i) GovernmentSecurities and Related lnvestments--'''---'--; i\'1inh;lU~J. ;45% and

(a) Government Securities, i upto SOI~o' I{b) Other Securities ('Securities' as delined in section 2(h) of the . I

'. -. Securities Contracts (Regulation) Act, 1956} the principal Iwhereof and interest whereon is fully and unconditionally;guaranteed bytb.e Centra} Government or any State Govcmrnem. ' .1

The portfolio invested under this, sub-category of securities shall . Inotbeinexcess of 10010 of the total ponfolio of the fund. I

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(c) Units of Mii~l .Funds' set' up as '.dedicated funds. for ... ' '11.investment in- Govt. securities and regulated by the Securitiesand Exchenge Boerdoflndia: ' I'

Provided that the portfolioinvested in such mutua} funds ~haH .not be, more than 5% of the total portfolio at any 'point of time Iand fresh investments made in them shan not exceed 5~~,of the ; Ifteshaccretions in the year., . .-------+- ....------JD~btlDstruments and Related Investments . . . \linimum I

. .' , 35'% and(a) Listed (or proposed to be listed-in case of fresh issue) debt· upto 45%'securities. issued by bodies corpora~,induding banks an~}pul;h'( rfinancial institutions (,Public Financial lnsritutions' as ddtlledunder Section 2 of the CQ»1p3nies Act. 2013}. whicb have ~!minimum residual mar uri ty period of three years from t ~ da~e DriAvestment. _._ ..~

(ii,

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".- amount tobe invested

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(b}B~elln·*iCi';lbOrids issuedbyscheduled commercial banks!uridet'RBtGulrlelineS: . . !

.: : ':.' ".;.' i

• iProvjdedtbai· iiicaseof· ipitial offering of the: bonds the iirivestirreritslYUl-Qemadeorityin. such Tier-I bonds which arc 1.prop()s~J~,b¢:ljsted. . ..' . ,. I

,..............................: :......".:.:~~d;~~~~r~esffii~ntshall be.made in such bonds'~f I

.... ". a~cb.edliledcommerctalbahk.;ftomthe secondary market only If 1suchtierlbond'Sarelistedan!d regularly traded. . :

T01alp!)rtf6Ji()ifivestedinth~s.sub-category, at anytime. shall !.'ntifhe more than 2% of the total portfolio of the fund. !

INo .lnvestment-in this sub-category in initial offerings shall !exceed200/0oftheii1itialoffepng.Furtber, atany point of time. !theaggr~gate>"ajiieofTier ]1bondsof any particular bank held rbyihefund:s)laHnot'exceed 20% of such bonds issued by that j9~. . . - I

I(c}'Rup~e:BondsJiaving an .outstanding maturity of at least 3 !yearsissued::b.yinstitutions. of the International] Ba~ for!Reconstructien . and '.. Development, Intemarional Finance l

._ CorPOratjon.3xidA.si~ Development Bank. I(d}Terni-])epos~rreceipts of notless than one year duration!isstiedhysthedtiled-c{}:rtim~rcial banks, which satisfy the ifollowing conditions on .thebasisof. published annual reportt s) l. .forthetnostf¥e.lltyears,asrrquite~·iohavebeen phblished bj';'1 ..themuaderlaw: ., .. I

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(i) baving declared profit in the immediately preceding three Ifinancialyears; . . j

.. . . I(ii), maintaining a minimum Capitalto Risk Weighted Assets :Ratio of9%, ormandatedby prevailing RBI norms. whichever is !~~~.. ~

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(iii).having netnon-performing assets ofnot more. \I)an 4%. of I.thenet advances;' . . . . .. . , ,

(iv) having a minimum net worth of not less than Rs.200 crores. :

. (c) Units of Debt Mutual Funds as regulated by Securities und ..Exchange Board oflndia: _, _

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INvESTMENT :PAITERN. " ." .. 1·' . .::Cate.go:ry..·. '.' : Percentageamount tobe Invested

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~. ..' . (~thefollQwil1ginfrastrocturerelated debtinstruments:

C'. . ". ..-. . .'. . . !....".." " "..~ , : _. (l};Listed {or proposed to be; listed in.case of fresh ti~ue} debt i( • < . .. : . . •.. ··::~··~········seCiiritJeS::·issue(Fl)f·1;>Ody·"corpoTIites""eiigaged···:maiiiiy····J'ii''·..lhe1..-·------

" buslri-e:)s of development Of operation and maintenance of 1. in'frastrUc"ture, or developmem, construction or finance of low..'costhb'ltsing, . .

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'. ..... . ..' . '.. . I-Providedrtbat-fresh investment in Debt .Mutual Funds shall not 1

.... ;;-;.:b¢·;tli~re:that15% oftheftesli·kccretiorisinvested in tbeyear ,,;)d i. ,,:, :tlu~:;pOrtfoH:6:ilivested In.thetii:sh.ali·not :exceed ~.%bf the total 1" . 'portf()fi6(jr~hefuild'at-aIiY'pOlnt in time. ; .. :.,':

Further, this category shall also include securities issued byIndian Railways or any ofth~ bodycorporates in which it hasmajority shareholding. .

Tbiscategory shall also.' include securities issued by any.AuthorityoftbeGovetnm:entwhichis nota body corporate and ihas been formed mainly' With the purpose of' promoting I.de:veloplTlerit of infrastructure.' . . I.

I .'. . I

ItisfurlherclarifIed that.any structural obligation uridcrtakcll' or :letlerOfco.JJlfort issued by: the-Cemral Government, IndianR.ailwaysor any Authority oftheCeatralGovemment, for any.secllnt)iissuedby abodycoJj>orateengaged'in the business ofinfrastructUre, whichhotwitllstandinglhe terms in 1)le letter ofeomfort.or the obligation undertake», fails to enable its inclusion ias security covered under category (i}(b.) above.sha~~be treatedas. aneligible security under this' sub-category, ". . ....

··(iillnfrastruclure andaffordable housing Bonds issaed by anyscheduled commercial bank; which meets the' conditionsspecified in (iiJ(d) above.

(iii) Listed (or proposed to .be listed- incas.e of fresh issue)securities issued by Infrastructuredebt funds operating as a N011-

- Banking Financial Company and regulated by Reserve Bank ofIndia.

I ~iv) Listed (~r proposed to be.. lisle.d in case.: of-fresh issue} ~t}tb' :llssued by Infrastructure Debt Funds cperanng as. a Mutua] FUl'H.t ;t and regulated by Securities and Exchange Board of India. :I I~··IS clarified that. barring exceptions mestioned ®

-=-, •, .- .•....:.. :. ... '.'.:~; " .. '.

i Percentage: amount to

.. :.: :.~" I be investe-d~"-'-'-'------';~o-f~.·'""jn+·fra-':'.'-"s-'-tn-.·~lC""'tUr'-· -e'-. ~a~s-p-,e'-r--:a--o...;.y-e-'-rnm-..,.e-n-t-. -o-r-' I-n-d-:-ia-~-s-b';"': a"-r-m-o-n-:"iz-'c~d T

·master~listofinfuistriitti1resu~sectors.'. ..' . . .'. '. . .

.' :Pr:ovidedtbaftheinvestinent,.indersub:..categories.(3)J (b) and (t) ,. {ijtd.(jv}ofthiscategOryN6, (iilshall be made only in such. .:·secutifiesWhich.have rninlimhnAA rating -or equivalent in the·applitable.ratihgsCalefromat least two credit rating agencies

. .' .. , . ,regislered.with.Securities and Exchange Board 'of~dia under ;. .' ....:. Sectliities andExchangeBoardofIndia (CreditRating Agency} :

.-.---- ··' ·;··:····:':·:·~······Regura'iioll~···T9~i~f···Provided=furth'et~that in case of the sub-·.category(t)(iii) the ratings" shallrelate to the. Non-BankingFinancial Company-and for tBe sub-category (f) (iv)i the ratingsshall relate to the investment: in eligible securities rated aboveinvestment gradeofthe.scheme of the fund. .

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. Providedfurther that ifthe securities tentitie!, have been rated bymore than two rating agencies, the two lowest of an: the rulingsshaUbe· considered; ;: !

Provided.further thatinvestments under this categoryrequiring aminimum AArating;as specified above, shan bepermissible insecurities having investmentgrade rating below AA!in case the f. risk ()fdefaultfor such securities is fully covered \vith Credit .DefaultSwaps .(CDSs)·. issuedunder Guidelines of the Reserve ;Baflkof India and purchased along' 'with the .underlying ;

'. seclulties;Purchaseamountofsuch Swaps shan be considered to· [be investmentmade underthiscategory. _. '. .

For isab-categoryJe), a single rating of AA or- above by II 'domestic orintemationelrating agencywill beacceptable .. . ;

(iii)

It is clarifiedthat debt securities covered under category ti ) (b) :above are excluded from this cafe ory (11). ' ..·Short-term·Uebt]nsttument$ andRelatedInvestments -"~-""'-rUpfo5~

Money market instruments:

Provided that investment in commercial paper issued by body .corporates shall be made only in such instruments which haveminimum rating of Al+vbyat least two creditrating ageiiciesregistered.with the Securities-and-Exchange Board·ofJndii '.'

Provided further that if commercial paper has been rated bymore than two rating agencies, the two lowest of the ratings shallbe considered.

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-,:: .·.··iNV:gSTMENTPATIERN T Percentage '.-, - . _: • . i • - . . .

., lamount to", ••'. I .

..: .... i be invested

::quegory·:.. -..,'.,

'. -, ; . - !C . ':(c)-:Temi.beposit'Jtecelptsof] upto oneyear duration issued by !. . ". . . .

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MtsceUaneousTUpto 5%

..... -. . INVESTMENT. PATTERN. i

(v) .. ·... : :Asset;&.c.l(~d~·'J)ii$t~tructur¢dand. " . :Jny~Slft{~nts~'"'" '.,

,' ..•:":~~tt~:~~~;~=~~::gej'based Securities or ~Residential ;'{b)UmtsjsSued~byRea1.Es(ate Investment. Trusts regulated by ith~sec'litities;and;Exthange Board.ofIndia. !

.;.. :.."..;~:::;""'::'"'xcr'issef~IJadced"'Se~Uiitl"erregUlated-bythe Securities and ;'. 'Exchan,geBt1ard'ofln4ia:' .

(d),Un.ltsof'InfraStnJctrirelhvestinen( Trusts regulated by the j.,.Secuntiesan&ii*cbangeBoafdoflndi3. .

Provided.thatinyestmentUilderJhiscategory No. (v) shall onlybe in listed'-ipstriunents or freshissues that are proposed to be ;,listed. ' !

ProVidedfurthertbat investment under this category shall be ,made only in such.'seCuTlties which Jiave minimum AA or;.cqulvalerittating'lhthe ,ap'pli~able;ratiJlgscale fromi at least two !credir,ratihg:~agen~ie.$tegistered by-theSecurities arid Exchange !'BoardofXlildia'ul1detSecurhies and ExchangeBoard of Inaja :(Gtedit:RatingAgellcyfRegqlatioos, 1999. Provided further that'incase·bfthe:.:stIb~ategoriesJb)and (d) the ratings shall relate tothe••,rating6(tbespons(>T entitYfioating the trust.

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Providedfurtherthat.iffhe securities / entities have been rated bv !more than ,tworatirigageJJCies,tbe two lowest of the !ratings sha II ,.beconsideiedi . . , ., . " ... , '-.'. ". . ,'. " .'. .

-----~.-,-..---.~.~---'

2. . Fresh accreti(}nstothefundwiUb.~ invested in the permissible categories specified iuthis investmenlpattern in a-mannerconsisjent with.the above specified maximum permissiblepercentage amounts to beinvestedln each suchinvestment category. 'while also complyingwithsuch other restrictioilsasl11adeappliCabie for various sub-categories of the perm issibleinvestments.1

3. Freshaccr~tionstothefuilds shall be the sum of un-invested funds from the past and.receipt~likecon.trib.uiioJ}Stothefunds, di~id¢nd I interest i commission, maturity amounts of .:earlier investments etc., asreduced by obligatory outgo during the' financial year. -

4. Proceeds arising out of exercise of put option, tenure or asset switch Ot trade of anyasset before maturity can be invested in any of the permissible categories described above inthe manner that at any given point of time the percentage of assets under thai category should

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not .exceed .the maximum limit prescribed tor that category and also should nor exceed themaximum limit prescribed for the sub-categories, if any. However. asset switch because ofany Rin·mandated Government debt switchwould not be covered under this restriction.

S. Turnover ratio (the value of securities traded in the year J average value of theportfolio at.the beginning oftbe year and at the end of the year} should not exceed 1\.VO.

. : .

. 6. If f01 any of the instruments mentioned above the rating falls below the minimumpermissible investment grade prescribed for investment in that; instrument when it waspurchased, as confirmed by one credit rating agency, the option 0.£exit shall be consideredand exercised. as appropriate. ina ma~lDerthat is in the best interestiof the subscribers.

c···· ········7:·········'···Oidhese··gLiideIines..comlnillito--efffCfihe above prescribed investment pattern shallC be achieved separately for each successive financial year through timely and appropriate

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&. The investment of funds should be at arms length, keeping solely the benefit of thebeneficiaries in mind. For instance, investment (aggregated across such companies Iorganizations described herein) beyond 5% of the fres~ accretions in a financial year will notbe made in the securities of a company I organization or in the securities of a company Iorganization in whichsucha company I organization holds over 10% of the securities issued,by a fund created for the benefit of the employees of the first company. organization, and thetotal volume of such investments will not exceed 5% of the total portfolio of the fund at anytime. The prescribed process of due diligence must be strictly followed in such cases and thesecurities in question.must be permissible investments under these guidelines.

9..

i. The prudent investment of the Funds of a trust / fund within the prescribed ..pattern is.thefiduciaryresponsibility of the Trustees and needs to be cxercised.with:appropriate due diligence. The Trustees would accordingly be responsible forinvestment decisions taken to invest the funds.

11. The trustees will take suitable steps to control and optimize the cost ofmanagement of the fund.

m. The trust wiN ensure that the process of investment is accountable andtransparent.

iv. it wilt be ensured that due diligence is ca~ed out to assess risks (lssoci~tedwjth~y particular' asset-before investmentis made· by t~~fund irt thai. p,;rltt"i~lar assetand also during the period over which if is held by the fund. TI);;: requirement ofratings as mandated in this notification merely intends it) limit the risk associated withinvestments at a broad and general level. Accordingly, it s»ouhl not be construed inany manner as an endorsement for investmem in any asset satisfymg the minimum

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prescribed rating or a substitute for.the due diligence prescribed tor being carried outbyme fund Itrust. .v. The trust I fund should adept and implement prudent guidelines to preventconcentration of investment in any ~ne company, corporategroup or sector.

10. If the Jlind·..has engaged services of professional fund taSsel managers formanagement of its assets, payment to whom is being made on tbe basis of the value of eachtransaction, the value of funds invested by them in any mutual funds mentioned in any of thecategories or ETFsor Index Funds shall lj>e reduced before computing the' payment due tothem il1"Q:l'!:J~rJQ..'w.9.~4..49.;g~J.e.jnc.i.d.~.nc.~..Q.f$;QSXSA.Du.~..cami.QD_willJbe exercised to ensure thatthe same. investments are 'not ·chiiiiieo·'wlth··a-'·YleW"'to"'enKancing""iile-'"fee-'paya"bTe:-Til--ihisregard, commissions for investments in Category III instruments will be carefully regulated.in particular.

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Annexure '~'Iof ]: t-e-w\'No .3,

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C()Il'PiI.~tiv~,'gi~/,:b¢t;w~i1, ,2G1.3Pattem of Investment notified by Ministry of,Lab.~9_r;~ff.t(>~~~);!:f()ii"PF:0.·'arid;~O~5:,pa*¢mofMinistrY of~jnance (MoF).

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,InvespnentInv~tl)1~nt Pattem to be notified': patl:~rnof ,with (!f[fect from April-1, 2015,2Q:13-l~QI~) ; (MoF)

.'GO\iemmet)t;$eclltitjes,. 'uptp55% ,Minimui1l4$% and upto 5Oo/~-·D~bt,·setOti~~:artq,·tebn'depostts' .,.....v··-,Up$.,55%~·- 41iAlrnum ..3S%--aOO-upto-4SO/o-----..-------.....-------------,--of banks , ,'"

upto5% upto 5% ;,:Equity and ' "equity' retated

,instruments",'Nil A Minimumiof 5% and upto 15%

Exchange T"raded FundSl IndexFunds

Nil ' Exchange traded Funds, Index Fundsand derivatives are part of the amtnimum 5% and Upto 150/0 limit forequity and ~uity related instruments

Asset Becked-Securitles, Units ofReal Estate I InfraStructureInvestment Trusts

NU Upto 5% limit

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Item No.4: Action taken' note on regulation Qf the Role of Advisors and FundManagers in the Investments by the EPF Exempted Trusts (agendaitem no. 7 of 114th FlAC). .

1. The FIAC in its 114th meeting held on 25.06.2014 deliberated on the issue on Role ofAdvisors and Fund Managers in the Investments by the EPFExemptedTrust (Agendaplaced as Annexure 'A:) and empowered CPFC/FA&CAOfor further necessary actionin the matter «relevant portion of minutes placed as Annexure '8').

2. In compliance to the decision of the Committee, it was decided to sought comments ofSEBI for setting up regulations for the role' of Advisors and Fund Managers in theInvestments of funds of the EPF Exempted Establishments vide letter dated 25th

September, 2014 (Copy ofthe letter placed as Annexure 'CJ' .

3. In response to EPFO'sletter, SEBl vide its tetter dated 25.11.2014 (Copy of the letterplaced as Annexure 'D') had forwarded its comments as follows:

(a) The regulations of SEBI are applicable on aJi investment advisors as well asportfoJioJfund managers. Accordingly, it has been clarified by SEBI that portfolio/fundmanagers and investment advisors engaged by EPF exempted establishments in'.respect of services related to investing in securities for consideration will require tocomply with conduct regulations imposed by the applicable Regulationsof SEBI.

(b) With reference to some instances of malpractices in the investments of funds ofexempted establishments in the absence of guidelines from the regulating/monitoringauthority, it has been informed that though the regulations contain a framework forexamining the compktints received from investors on matters havtnga bearing on the.conduct of the portfolio manager/adviser, inter se disputes or claims between theadvisors/fund managers and such clients or EPF exempt establishments may fall.outside SEBl's purview and. such disputes or claims can be adjudicated beforeappropriate forum such-as Arbitration or CivilCOurts.

4. _ The Comments of SEBIwere considered and it was decided that an advisory may beissued to all exempted establishments to engage onty SEBI registered Portf~ioManagers/Advisors and .ln case of any malpractices reported, the case may beforwarded to SEW for necessary action as they are the regulator for the industry.Accordingly, an advisory letter to aJi 'exemPted' 'establishments·00·Regulation ot theRoteof Advisors and FundManagers·in the Investments of the funds of EPFExemptedEstablishments for apJ:!Ointingonly such entities as Fund Managers/Advisorsthat areduly registered with SEBIfor the purpose has been issued on- 13thJanuary, 2015 (~of letter issued ~o all exempted establishments is placed as Annexure 'E' forready reference and perusal.). Further, as decided, as and when any case ofmalpractice, etc. by Portfolio Manager/Advisor engaged by any exemptedestabWshmentsis brought to the notice of EPFO, the same wiH be forwarded to SEBIfor necessary action at its end in its capacity as 'Regulator' for them and will be followup with it.

. The action' taken· note 011 regulation for rOle of Fund Manager/Advisor isplaced before the Committee for perusal and further directions. .

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. Item: Regulation of the Role of Advisors and Fund Managers in the'investments of the EPFExemptedTrusts.

Central Government i.e. Ministry of Labour & EmpJoyment, Govt'. of India has anoverarching, role of monitoring and. regulating the management of the EPF fund by theexempted trusts under Section 17(lA)(d)(iii) of EPF& MP Act - 1~52. The roleof regulatorbecomes very important in view of the overall responsibility of EPFOto extend statutorybenefits to e~igibleemployees of exempted.establishments.

2. The process of investment by the Trust usually involve the role of the advisor, role ofFund Manager .~I).g..r~~...9f..ttJg..9..~~I~~...~~~~.9...~.X~!!f:lJ_':!...!~~_!~_~.Accordingly, there arethree broad aspects which need to be monitored in this process in order to ensure thatinvestments by the Trust are being done in a bonaflde manner.

i) Adherence to the pattern and the guidelines notified by Central Governmentfrom time to time: This area has long been.neglected. However, proposal has beenmade to' prescribe some basic guidelines for investments of the Trust money by thetrusts that was approved in the ll1th Meeting of FIAi held on 27th March, 2014.CurrenttY,the propose»to notify the guidelines is pending with the Central Government.

Initiatives have.also been taken to provide facitityfor onHnesubmissionof the returns bythe exempted trusts. These online returns would ensure that at the end of thefinanciatyear, the exempted trusts disdose their investments made during the year in detail.

Adherence to the Pattern of Investment prescribed by Ministry of Labour& Employmentand the guide»neswhich is penrnng for notification as on date may be ensured by EPFOat the time of ann~a1lnspectlorrof these trusts.

n} Role of Advisors: Ministry of Labour & Employment has never attemptedto prescribethe .criteria for qualification of .a person or agency"that'can' aetas .'an Advisor to the .exempted trusts. No process of registration' of a person willing to act as an Advisor tothe trusts exists as on date. Simitarty, the conduct of an Advisor in order to ensure thatit gives bonafide commercial advice ln the best interest of the Trust is atso not beingmonitored. EPFOdoes not have requisite experience or resourcesto- qualify, register,monitor or regulate advisors.

"

in) Role of Fund Managers: Ministry of Labour & 'Employment has never attempted to.prescribe the criteria for qualifICatiOnof a person or agency that can' act as a FundManager-of the, exempted trust:>~N6process-of reqistration of a personwining to act asa Fund Manager of the trusts exists as 00 date. stmitarty, the conduct of a FundManager iF}-order to ensure that it makes prompt and prudent investments.in the best

interest of the Trust is also not being monitored. EPFD does not' have requisiteexperience or resources to qualify, register, monitor or regulate fund managers.

3. The Committee may like to be informed that SEBl has been regulating the securitiesmarket in India so as .to protect the interests of the investors as a specialized regulator forvarious financial intermediaries like mutual funds. It has already come out with SEBI(Investment Advisers) Regulations, 2013 and SEBl (Portfolio Managers) Regulations, 1993 inorder to regulate the functioning of the person or agency that can as an Advisor and as a Fund

.....'" ·········Ma'flagef·'fespettiveIY:..···WJ11Ie-~proviamg··ffleir··5e·rviCes··to··tfie···exem·pte(n:rustS~-·sjnce"t;'erole ofthe Advisor or the Fund Manager is likely to be identical to the role they need to perform insome other similar set up like mutual funds or portfolio management services (PMS), thepossibility of entrusting this job to SEBImay be explored.

4. In this context, FA & CAD had a telephonic discussion with Mr. Ananta Barua, E.D. ofSEBl who overseesthe overall regulatory function in the above context. He has shown interestin exploring the possibility for putting uniform regulation for regulating the conduct of Advisorsas well as.Fund Managers.

S. RAC may peruse the above Agenda item and if it decides that regulation of the role ofAdvisors as well as Fund Managers engaged by the exempted trusts is required in the contextof the managem'ent of theE~F funds by exempted establishments, it may give appropriatedirections.

6. FIACmay also like to empower CPFC/ FA & CAD to explore the possibility of putting a-.uniform regutator mechanism alongwith 'SEBl (in its consultation or through it) for regulatingthe roll of Advisors.and FUild Managers.

Proposal: The suggestions outlined in Para 5 and 6 above are placed before

the FIAC for consideration.

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Employees' Provident Fund Organisation(-wf ~~~, 3Jffif m

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The committee after detailed discussion decided to recommend theitem to the CST for approval.

Item No."6: Finalization of comments on Revised lnvestmentPattem"proposed by the Ministry of Finance,GO~ of India.

FA & CAO introduced the agenda item to the Committee. Heexplained that the Ministry of Anance periodically notifies theInvestment Patte~. It has recently brought the draft Pattern ofInvestment and has sought comments of all stakeholders includingEPFO.

A four MemtJers Committee was constituted headed by Sh.S.VisVanathan, Ex-MO, SSI to ,examine the Draft Revised InvestmentPattern, which had sugg~ed that EPFO should start investment inequity.

The RAe appreciated the work done by the Four MembersCommittee.

Shri J.P;Chowdhary agreed to the proposal of the committee ofsome investment in equity. However he suggested that maximum capon Investment in Government Securities should be removed andaccordingly advised that the matter be taken up with DFS in this regard.

rl After detailed discussion the Committee recommended. the item to

the Board for consideration with the observation of Shri J.P.Chowdhar'y

Item No.7: Regulation of the Role of Advisors and Fund Managers in theInvestments by the EPF Exempted Trusts.

FA& CAO'introduced the agenda item to the Committee.---_._. __ ._- .While acknowledging the concern raised in the item the committee

approved the proposal to empower CPFC/FA&.CA.O for further necessaryaction in the matter .

Page 4 of 5

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Ate no. HO/IMCI121/Irivestment GuIdelines/20~,\

To,· a..b1The Chatnnan,SecuritiesExchang~i3Oardof India, ,PlotNo.C+A,'G' Block,··Bandra Kurla>Complex, -Sandra(East),Mumbal400051.

~: Regulatlon-- of the fiole-flf -Advtsot'$~~Fun~·Milncmers.-il1t;lie"IIlY$ti.I~I::$:Ofthe funds of EPfExempti!d,ESt8tiIfShirtetlfs.

The Central Board ofTnJstees, CBT,EPF grantExemptionst9;tfle"~lst)rnentsunderSection 17 (I) ~t'EPf & MPAct- 19S2withcertainc:onditionsOIqanl.ltst,e.r~ese,~~;- -

i. . The rate of tnterestdedared by such exemPte(festabflShmerit~houtd.t16tbelesSfavorable than EPFO.

ii. The Exempted Estabtishmentshouldlnvest its funds inaec.;orciancewiththein$tructionsof the GovemmentofIndia fromtimetottrne.

iii. The .Employees of theE.xenptedEstabUsn,ment shOUlQ~lso,t»einen~()fOther'benefits which on thewhote should not be Jessfavorablethanthe:penetitSprovidedunder EPF:Scheme 1952.

2. As on today the exemptedestablish~ts'i\rernanagingtheirfttndSln~~n~withthe investmentpattem .prescribed by th~GoVem~~lltof IndI~-wit:hClUt;~nyfurth~rgUldetines .from any of the regutatingJmooitortng .authority~N~hil~1he--EPFO~-is--fQiiQWin~{2Q13

assigned task. However, it has been brought to the notice of EPFO that in the absence ofguidelines from the regulating/m9f1itoring authority, there have been some instances of

,"'" malpracticesin the Investment of funds of exempted E!Stablisbmentsi

3. In thIs connection, kind reference ls invitoo·to SEBI (Investment Advisor) Regufations,2013 and SEBI (Portfolio Managers) Regul~t[Ons,;1993,~lr15()l1le"regulationshave beenprescribed by SEBI for regulating therol~ ofAdviSor'andPortfOllo.Man~rsfortn~ent bythem ..However, it is not evidentwh~thert:he$(!,tegulatibnsClre·Cll?pIi.Cilbleonthe~onduct ofadvtsorsand Fund Managers engagedbyEPFecerhp~EstablJshments~ . ..

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4. Accordingly, it Is felt byEPFOthC;lt-JnvleVJQfsa~tYof·~·JOv~entstn"de ·byJ:heFund Managers/Advisors·ofePFExempted_~'E$tJlr$hrn~nts,!ij)m~r~utatfonJQrtherQleofFundManagers/Advisorsengaged •.by.·suchestabiishmen,~·rnay·be'Ptiti'lPlaee.AccordingIYi}ntemalIyit was decided to explore the ..posslblllty:o.fputti~ga ·unl(oJ'lllreg9Ia~Frnechanlsm.aloFlgwlthSEBI(in its consultation or through it) for l'egulatingtheroleofAdVIS9l'sand.FlIndcMa'nagers.

4. In this regard, reference IsaISOin\1tedto:11kedelJ~ti()t1$.wg·t@dQn·thlslsSue-wtl¢,rejnyou had shown' Interest in"expk>rlng the-PQSSibttlW'forpllttitlglnpta~ubfromrreg~latfonsf()r.regulatlngthe conduct ·of Advisors as well as;FundManag~.~9~bYEPFExernp,tedEstablishments. .

5. In View·ofabove,.it·ISkindly·~~:t,oSUgg~¥QjJl"vaJt@,ble:/c:9mlJ:lentr$lVJewsrorsetting upregulatlons for iheroleofAd\Jisorsan(tFunclManpg~rs':.iO";t;f:1e:InVe$trl1erttSof-:fijndsof the EPFExemptedEstabilshments. We-may alsOdeputeS()me·offl~rstrorneachorganlzationto work out the possibilities.

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rr:» ,Se€:SJ"itie.s:''a:Rd ExchangeBoard of India

General ManagerINVESTMENT MANAGEMENT DEPARTMENTDIVISON OF FUND-I

IMO/DOF-1110'W/33364/2014

November,25,2014

Shri Sanjay Kumar

Bhavishya Nidhi Bhavan,

14, BhikajiCamaPlace;

New Delhi-11 o 066

Financial Advisor and Chief Accounts Officer,

Employees' Provident Fund Organisation,

Ministry of Labour & Employment,

Dear Sir,

Sub: Comments on Regulation of the Role of ·AdvisorsandFundManagers

in the. Investment of the Funds of EPF Exempted Establishments

This has reference to the letter dated September 25, 2014, wherein the

.comments of SEBI have been sought on the above mentioned subject.

The comments of SEBI on the issues raised in the letter are as below:

1. It is not evident whether SEBI (Investment Advisor) Regulations, 2013 andSEBI (Portfolio Managers),Regulations, 1993 are applicable to the conductof advisors and fund managers engaged by EPF Exempted Establishments.Views of SEBI hav~.J?'fJ.J}I1sQ~gtJJ.QIJ...t.h..~j$§y'f]of setting l!P. regulations forthe role of advisors and fund managers in the inveslme;:,t··of·-;unds····o"(·························,·.

exempted establishments.

SEBl's view:. , '

In view of the definition of 'investment adviser' as per the SEBt (Investment

Adviser) Regu~ations, 2013 and the definition of 'portfolio manager' as per

the SEBI (Portfolio Managers) .Regulations, 1993 and the exemptions from

registration given therein, it follows that any person who provides portfolio

management services or investment advice in respect of securities to its

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. investment advice in respect of securities to its clients in return fDra considerationwill fa1/within the SEBI (Investment Advisor) Regutations, 2013 and SEBl (Portfolio

Managers) Regulations, 1993. Hence, fund managers and lnvestment advisors

engaged by EPF exempted establishments in respect of services related to

investing in securities for consideration will requife to comply with conduct

egulations imposedby the applicable R-egulations.

" .. -'."2. There neve been some instances of malpractices in the investments of funds

of exempted establishments in the -absence of guidelines. from theregulating/monitoring authority. .

SEBl's view:

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In this regard, it is stated that both investment Advisers Regulations and Portfolio

Manager Regulations contain a framework for (examiningthe compfaints recejved

from investors on matters having a bearing on the conduct of the porttono

manager/adviser. However, it is informed that inter se disputes or Claims between

the advisors/fund managers and such clients or EPF exempt establishments may

fall outside SEBJ'spurview and such disputes or claims can be adjudicated before

appropriate forum such as Arbitration or Civil Courts.

Yours faithfully, -_.__ ._---_ ..•......_._ .

~~Barnali Mukherjee

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(lJIlf~~ ~,:qmr~)EMPLOYEES' PRO¥XOE;NTFUNDQRG;ANIS.AllON

(Ministty r:I Labour &.Ernpk1(ment, .GoVl of-India). ~.~ I~HeadOtfice

.·~Nit ~.14':~1$Jr;n~j;tt.~t4ft410~ ..Bhavishya ·ffldhf Qhawan, 14, BhiIcaiji1Cama~N¢'W.-oelhi""UO 066.

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"Rle no. HO/IMC/121/Investment GUideUnes/~AH

To, '3pate: (

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All Exempted Establishments

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The CentratBoard of Trustees, CBT, EPF.graht lQ(emptiol)$tQtheEstablishl11en~ under.Section 17 (ilof EPF& MPAct-1952withcertaincoriditions'.'Inanutshell:theseare; .

i. The rate of interest declared by such exemdtedest~blishlT1entshouldnotbeless than. that declared by EPFO.

ii. The Exempted EstabHshmentshould invest its funds in accordancewith the instructionsof the Government of 1l1dia from time totime .:'

iii. The Employees of the Exempted Establishmentshouldalso,beJn enjoyment of otherbenefits which on the whole should not be less' favorable than·the benefits providedunder the EPFAct-1952 & schemesframedthereln.

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2. Presently, exempted establishments are managingtheirfuhdsinacc()rdaric~withtheinvestment pattern prescribed by the Govemment of Indiawith()utanYifurtl'lergui~e/inesfrom.anv of the regulating/monitorinq-·auttrority:--While.··the-'-E~F(l'·'is:,'folt()Wing-,,'2013;i,·pattern·ofInvestment notified by Ministry of Labour & Employ.menti-.G~vt;.ofJndia,.exemptedestablishments continue to follow 2003 Pattern as on today.ltha~;cQl'lJeJt()thenotic::eofEPFothat some of the exempted establishments engage fund' man~gerstaqvis,orsforefficientandprompt investment of their funds. The Fund Manage,rs/AdviSQrsSQ:-en9a,ged-areJequiredtQ~idthem in the assigned task. However, it has been brdughttothenoti

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t;) 3. In this connection, your attention is drawn to SEBI (Investment Advisor) Regulations,2013 ClJ1Q.SEBJ (Pprtfpti(JMani3.gers) Reg\.ll~tiQJ1s,lQ93, wherein sO[1')eregplations Di3vebeenprescribed by SEBI f~~ regulating the role'orAdvisor and Portfolio Milnagers for investment bythem. Accordingly, it is felt by EPFOthat in view of safety of the investments made by the FundManagers/Advisors, EPFExempted Establishments must ensure thatthey must, at the time ofappointment of Fund Managers/Advisors, appoint only such entities that are duly registeredwith SEBIfor the purpose.

Yours faithfully,f-"'"

. (Abb~;::Regional··P~F•.ColTfmissioner';'I(IMC)

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5. It is further highJighted thatin caseofsuch;malpracticE:$Teportedtaorbroughttothe.notice of EPFOin respect of such establishments, apart fromreferril'lg·thematter to~SEIR for.corrective action at its end, legal action as deemed 'appropriatebY'EPFOwithin the frameworkof existing rules and provision may also be initiated.

6. This issueswith the approval of CPFC.

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Copy to:

1. All ACC(Zones)2. All RPFC-I, Regional Offices IFor necessaryfollow-up,

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3. PS to Joint Secretary, (Ministry of Labour & Ernployment)- .for information incontinuation of MoL&Eletter dated 01.04.2014 and'EPFOletter .dated 30.05.2014.

4. SEBI - for information in response to SEBIletter dated 25.11.2014.

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rrnr:c Item no 5 Risk Management Policy for inv~tment in EPFO.(' The Rnance Investment and Audit Committee (RAC) in its 111th meeting held

on 27.03.2014 has decided to formulate aRisk Management Policy for EPFO·(copy of the .Minutes is placed as Annexure-A). Accordingly, comments-on RiskManagement Policy which includes investment risk, credlt risk andalsooperatiOnal risk was caUed from our Consultant MIs CRISIL 'arid all the four"Portfolio Managers.

The Risk Management Policy for EPFOdrafted by Consultant MIs CRISIL is asundere-

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RISK MANAGEMENT FRAMEWORK OVERVIEW

Risk Management Function

The Fund should have an independent risk management function for identifying,evaruating or measuring at! rlsks inherent in portfolio management, as well asestablishing controls to mitigate such risks. The risks include:

• Fund Management voJatility in performance, portfolio concentration, interestrate movements, credit risk.

• Operations: deal errors, settlement problems, inaccurate financial reporting,fraud, failure of mission critical systems and infrastructure, obsolete systems.

• Other Business Risks: critical knowledge loss, skills shortage, non-compliance,third party risks. .

Risk management should be separate from fund management. The functioncoutd be carried out in a number of ways: .

• As an additional function of existing employee, e.g. the Comptiance Officer orIntemat Auditor;

• Through a Risk Management Committee;

---·-·-··----·····-·-.-·OutSDUrcecHo··aij··externaragency· .

... FUND MANAGEMENTPolicies and Procedures

v.,

• The fund should have a documented investment policy. This should:

- articulate its investment strategy and risk phUosophy (i.e. its attitudetowards risk, and the amount of risk it is willing to take as part of its investmentstrategy)

- define the objectives of the Fund, asset allocation targets and modelportfolios (if used)

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- define the investment process

- define limits and mechanisms for monitoring limits at various levels: asset class,industry sector, security, counterparty

- define exceptions and their monitoring

"- include an approved list of brokers. .

- provide guidelines for transactions with associatecompanies

- define investment norms for debt instruments based on credit ratings

Systems

• The Fund should ideally implement a front office system which is integrated withthe back office system. This will facilitate:

- setting up of parameters such as asset allocation llrnlts,': counter "perttes," "securities, associate classifications and authority levels

- Straight-through processlnq (i.e. the flow of order and trade information fromthe front office to the back office without any manual intervention) to allow onetime capture of investment decisions .

system check on pre-set parameters and reporting of breaches e.g, whetherinvestments have been made in permitted securities or limits on deal size, etc.have been exceeded

- automatic time-stamping of deals

- maker-checker authorisations

- exception reporting

- monitoring of outstanding confirmations, settlements and payments

- accesscontrols and firewall

- decision support capabilities and portfotio modelling (e.g. scenario analysis,what-if analysis)

Organisation

• The Fund should establish an Investment Committee. This committee will ~. ,responsible for:

- laying down the Fund's investment policy and philosophy with regard todifferent asset classes, industry sectors, counterparties, etc., as defined in theInvestment PolicyManual

- reviewing performance and positions with regard to the objectives of theschemes

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ICIGI Centre, H. T. Parekn Marg~ Churchqate, Mumoai 400 C20 . Phone: +91 22 288 24601 70

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Corporate Risk Management Group

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AICICI Securities" PTitn;Jry DlN.tJe.rship Limited

Phone: +91 22 288 2460 I 70telCI Centre, H_T_Parekh Marg, Churchgate, Mumbai 400 020

CONTENTS

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~CIC' Centre, H_T. Parekh Marg, Churchpate, Mumbai 400 020 - Phone: +91 22 288 2460 / 70

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1. INTRODUCTION

The focus of a riSt< management system must be to anticipate the risks, consciously-planf~ ~heni· "and ,be better, prepared for any uncertainty. lnvestment decisions should M taken with maximum". . ~-.-emphasis on safety, prudence, optimum return, sOund commercial judgment and avoiding. funds toremain idle.

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ICICI Securities Primary Deatership Ltd (I-SecPD) acts as Portfofio Investment Manager within thebroad framework of investment guidelines of indivklual portfolio schemes and internal risk Policiesset by the Corporate Risk Management Group (CHUG).

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2. RISK MANGEMENT ORGANISATIONThe risk management fund'ion for the portfolio management services is handled by ,the\ COrporateRisk Management Group (CRMG) at l-See PO within'the broad framework of risk Policies andguidelines e~iablished by the Portfolio 'Management Servibe~(PMS)Management COfl1miltee.

CRMG IS responsible for managing the cledit and m~tf

AICICI Securities"Primary Do&itJr'ship limited

ICICI Centre. H. T. Parekh Marg. Churchgate. Mumbai 400 020 Phone: +91 22 288 24601 70

The PMS Management Committee meets at least once in a financial quarter. However, it may meet

more frequently on a need basis. The quorum for the Committee_meetin~is~four members with atleast two representatives from Groupsother.thaa the Fixed.income Group'sHall remain present at

all meetings of the PMS _Management Committee. Further, the-Risk and Compliance groups to berepresented at all the meetings.

a RISK POLICYTo mitigate the credit risk arising. on. accotJnt. of investment of acC{etions to individual, portfolioschemes, exposure limits are set for issuer counterparties. The Counterparty List is a list ofcompanies which have been approved by CRMG for the purpose of investing infixed incomeinstruments issued by them. The Counterparty Lis,!:js,.revjr~e~., .anoll,~~Y:~y f3cJ9.ing/deletingcompanies from the list and as~ig'1iI19Iin;ifs. fo: theiii;Addition'ally; trte coun*erparties are monitoredperiodically for any adverse change~ ;imp~ngits credit quality (for"exampie ratil19 watch by creditrating agencies, press releases, Jlptifications, etc) and intil;l1atedto the dealer.

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3.1. PRODUCT COVERAGE

The products covered under PMS comprise fixed income and equity instruments subject toinvestment guidelines of the specific client, The limits for t~~~jnvest~entsshall beset up as perthe investment guide~nes specific to thE:1jGlieot

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3.2. RISK POLICtES FOR FtXED INCOME SECURITIES

3.2.1-. RISKPOUCY FOR INVESTING IN PUBLIC SECTOR BANK BONDS',

CRMG sets exposure limits forbonqMsecuritiesand short-ten'ndeposit receipts of Public SectorBanks.

....· · · ·..·CRMG reviews the performenceof .se.lectn~~()I1~iSed,I?~nks with NPA ratio of 3% and below,

networth of not less than Rs2.000mnandcapitaladequacy of minimum 9% to determine the limits.The methodology adopted is based C;;~t~;widefyaccePted CRAMEL CRAMEl isamnemonic forthe six parameters against wtii

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AICICI SecuritiesfI 'Primary Dealership Umitttd

ICICf Centre, H. T. Parekn .'II1arg. Clu ..rchgate. Murr:.tlai400 020 Phone: +91 22 288 2460 170

Asset Quality

Management Evaluation

Earnings Analy~s

Uquidity

The CRAMEl methodology is a globally recognised metho6oIogyfor assessinq the credit quality ofbanks and financial institutions and is atso used by rating agencies like S&P, Moody's etc.

3.2.2. RISKPOtlCYFOR INVESTtNcmA.fe: BONDS'As mentioned eariier,CRMG sets exposure fimits for bonds and debentures 1ssued by corporates

and public sector undertakings .

. CRMG has a review methOdolOgy to assess the 'credit qUafityo('diffetent-cot.Jnterparties and

determine the appropriate exposure limits freach ·OOt..Ihterparty:fnvestm~nt is allowed in fixedincOme' instruments of dnty such ci>mpanie8 YAiiCh are pi{rtfihe'()"RMB Cbuntefparty List. CRMGmay however, at its diScretion, alloW i~vestinem in COrhpa~S~jare nof.part:ofthe counterpartylist based on credit ratings by external ~s. .

The CRMG review methodology focuses' on the three broadr'areas'ofblisiness risk, financial risk and

management risk.

Business risk ana~ysis covers the business fundamentals, operational efficiencies, industry analysisand an anrategovernance standards followed. relationship with ef'{lployees ate,

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tir',AICICI Securities" Primaty DeaJefshlp Umlted

ICICI Centre, H, T, Parekh Marg, Ctu.rchqate, MUfT:oai400 020 Phone: +91 22 288 2460 I 70 -rThe CRMG review methodology involves. an analysis of both the quantitative as well as theouahtanve aspects of a company's performance in the aboye ment]oned-ar~as:. . .

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.RISK PGLICY FOR INVESTMENT IN PUBLIC FINANCIAL INSTITUTION (PFI) BONOS

For determining bondsJsecurities limits for PFls the CRAMEL methodology used for setting limits forbanks is adopted. (Refer Section 3.2.1 above).

cA detailed analysis is carried out toe"al~a~~t~;~!'fcQf'\ll.~OGef{~ a PFlon all six CEMMELparameters of Capita~, Re~urces, Asset Quality. ""anag.ement Evaluation, Earnings Analysis andLiquidity.

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3.2.4. RISK PQLlqy: FOR INVESTING IN,STATE qOVERNMENT GUARANTEED SECURITIE~

AlthoUgh there is.a fair Je...,elof predictabiliw of C¢ntralGovernment transfers and .the tightlyreguJated franwwork witIJim.which the States;p~ratei,it !,~nnot be' constru~ as indications of the

. .Govemmem .of India's ~pport ·towards,d~bt~rvi~ng\_unless t~. bor:roWt09$' are.explicitly counter- (.guaranteed by the sovereign; Hence, CRMG detertoine,~JjmitsforS.~ateGovernment Securities,

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The limits are based 00' the fiscal andefOAerriicpositipr,ls !;lfthe S~~esCQncerned, which is (published by the Rat, apart from credit ratings from external credit rating agencies. The keyparameters on which limits are based are given below:

1. Economic Strength '!

2. PDtiticat Stability &. Admirnstrative qapa,bility

3. Revenue & Expenditure Performance

4. Financial.,Position - Borrowings

5. Financial Position -' Liquidity

6. Contingent liabilities

3.2.5. POLICY FOR DEBT MUTUAl- FUNO$

CRMG approves and.sets limits-fOf m4tual.funds in Wh~~.:i~ve~trnentscall be made. Limits are also. .set for the broad class of schemes offere9"by.;eGlcrmutufjlfund.house. For example, exposure limitis defined for the maximum investment in the Liquid Scherne/s of a particular mutual fund.

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'3.2.5.1. Pr&reqoiSitesfdr'r\v~nt in~utuaJFunds i. rOnly thOsem~uatfLnd"hdUseswit~~ets under managemeht(AUM) of mote than RS10bh areconsidered for approval, to ehsure investments only irnUnds WitHa large pool of assets, '1 \

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c'n'CICf seciirittes"Primary Dealersh}pLimited

ICICl Centre, H, T. Parekh Marg. Churchqate, Mumbai 400 C20 Phone: +91 22 zas 2460 I 70

For a particular scheme of a mutual fund to qualify for limits, the minimum corpus has been setat Rs 1bn, to ensure investments only ,in schemes With a large paoLof assets .towithstand Suddenand/or heavy pressure of redemptions.

At least 65% of the fund!s portfolio should consist of investments 'in AA+ and above long-termor P1+ or any other equivalent ratings. In this case G-Secs, T-bills,-cash, call and repo pqsitionsare considered as equivaient to AAA

The fund's exposure to thosecorporates,whichar~Jated UN and betowshou1d.Qe lessth~n 5%of the"total corpus,

3.2..& DEAlERLIMITSTo manage investments on beMlfof individual:POrtf9lio.schemes"I-Sec PDdesignates a~FundManager' and an 'Associate fund Manager' w~f'espective-dealer limits based on the assets-under'."management (AUM) of individual portfolio schemes.

Any investment beyondtbelimits for the Fund~anager and Associate Fund Manager would requirea pre-approvaHrOiTttheMD& CEO. '"" """ .

3.3. RISKPOLICtES FOR EQUITY INVESTMENTS"The current risk policy covets' onty eXCha'1Ye-tradea, ca'sl1..seuled produCts. In the event of anychange viz. introduction of defivery based s~~t contracts, in options, .the risk policy w0l:1ld t>erevisited.

ConsKJering the inherent volatility and generally higher risk associated with equity investments,CRMG has established a mutti-pronged risk policy for the equity trading portfolio. The key features of .this risk r.nan~ement policy are:

Defining a tradinquniverse to mitigate liquidity·risk

Establishing diversification limits to mitigate unsystematic risk

Setting up deafer limits

3.3. 1. TradingUniverSe

To mitigate liquidifyrisk, atraOing universe corisfsiing of widely traded and behchmarkedklqiceshas been defined for equity investments. ,!\ccOrdHlgly, trading is permitted in all groups'ofstpcks~xcept 'Z' group stocks. i,~ i

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,Q'CICI Securities"Prit'rn1f¥ D1wJJ/Jfshl''pUmiUtd

ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai 400020 Phone: +91 22288 2460 I 70

For mutual funds, trading is permitted in funds approved by CRMG. CRMG sets limits for mutualfunds based on parameters such as .assets under management, (und size of individua.1 schemes,performance track records of the schemes. and the-fund manaqer etc.' . " . .

3.3.2. Diversification LimitsThe risk associated with equity investments can be classified into systematic and unsystematic risk.While it is difficult to escape systematic risk, since it affects the entire universe of companies/stocks,the unsystematic risk, which is company specific, can be reduced by diversifying the portfolio.

In order to mini mise the unsystematic risk, the maximum investment in equity instruments of asingle company has beencapped.at .1Q%:ofot~.equitycorpus for scnps forming part of the SSE Aand B group of stocks and Initial Public Offerings (lPO's).This limiti~,however, not applicable toinvestments in stock indices.

Inve.stment is permitted up to a maximum of 5% of 1heequity.co!p~~ for each trading position inscrips other than BSE A and B group,. subject to a maximum aggregate limit _

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#lICICI Securities"Primary DHiq(shipUmiffX/

ICICI Centre, H. T, ParekhMarg, Churchgate. Mumbai400 020 Phone: +91 22 288 2460 I 70

Calls: MTM of underlying multiplied by deltaPuts; MTM of underlying multiplitxiby tlelta

Calls: MTM of under!ying multiplied by deltaPuts:-MTM-of uoderlying'multipliedby delta ..

For each underlying, .the exposure computed as expiafned' above, mu-stbe added. The absolutevalue of the exposure so computed is added for every 'undeffy~ng to' arrive at the exposure for theprop book. For example, exposure in Infosys will be:

3.3;3. Dealer Uinits

To manage investments on behalf of ind.vi~aI·PQrtfoli ~~,I-Sec PO rlesignates.a 'FundManager'. The Fund Manger can invest a maximum amount of 10-%9f lhe equity corpus per deal,

Any investment beyond the lirTiitsfor the FundManaget wa6~d;~e'c:tpte-approval frcin'!~ MD &C~0

3.4. POLICY FOR VALUATIONValuation in case of fixed income secUritie'~ would' 1be'dM~~~i.onYield curves and Spreads

provided by FIMMDA at the end of th~ month. ,Further, in ~'~Of equHVmarket securities, thedosing market prices would be used fOr?valu