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TRANSCRIPT
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EMPLOYEES' PROVIDENT FUND ORGANISATION
NEW,'DELHI
124th Meeting of the
FINANCE' INVESTMENT AND AUDITCOMMITIEE
(A sun- COMMITTE;E OF THE CENTRAL BOARD,
EMPLOYEES' PROVIDENT FUNDI
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EMPLOYEES' PROVIDENT FUND ORGANISATION
AGENDA BOOK124th Meeting or the Finance Investment and Audit Committee,
Central Board, ~PF.
Date: 22.03.2016 INDEX OF ITEMS Time: 11.00 A.M.
ItemPage No.No. Agenda
1. Confirmation of the Minutes of 1231lC1 Meeting of the Finance 1-8Investment & Audit Committee (FIAC ) held on 18.01.2016
. 2. Action taken report' on the recommendation of the 123M 9-10Meeting of the Finance Investment & Audit Committee
, (FIAC) held on 18.01.2016
3. Performance Evaluation ofPortfotio Managers for the period 11-1201.07.2015 to 31. 12.2015
4. CBLO borrowing transactions by the Portfolio Managers during 13-19
the period 01.01.2016 to 29.02.2016' .
5. Alternate strategies of Investment in Exchange Traded Funds 20-26
6. Concurrent Audit Reports of Provident Fund (including other 27-61funds) and Pension Fund for the month of December 201S &January 2016.
7. Process of selection of new External Concurrent Auditor (ECA) 62
8. Any other item (s) with the permission of the Chair;
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124th Meeting of FIAC.22.03.2016
Item No.1: Confirmation of the Minutes of 123rd Meeting ofthe Finance tnvestment and Audit Committee heldon 18.01.2016 at EPFO,Headquarter, New Delhi.
Minutes of 123rd Finance Investment and Audit
Committee' (FIAC) meeting held on 18.01.2016 was circulated vide
letter No. Invest.l/(123nd)Mtg.FIAC/201S-16/21731-S1 dated
21.01.2016 and letter No. Invest1/(123rd)Mtg.FIAC/2015-16/22273-93 ,
dated 28.01.2016 Copy of the minutes is enclosed as Annexure-'A' of this item.
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Minutesmay be taken as confirmed.
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Telephone: 26178450 Fax No: 26194349
Em,ployees'Provident Fund Organisation• t~ ritr3mt~, ~ lri7m')
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"la, CiIi'Iq I Head OffIceBbaylsbya Nldb! BhAWan. ii-BblkalS! eam. Plac"tin Oelbl-U006§
No. Invest.I/l(123'cJ) Mtg./FIAC/2015-16., ""l \." I J
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To
All Members,
Finance Investment & Audit Committee,
Central Board of Trustees, Employees' Provident Fund .
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Sub: Minutes. of 123rd Meeting of the Finance Investment & Audit Committee (FIAC), .CST, EPF held on 18.01.2016 at EPFO, Head Office, New Delhi - Reg.
Sir,
Minutes of 123td meeting of the Finance Investment & Audit Committee- (FIAC)held on 18.01.2016 approved by the Chairperson are enclosed herewith for your kind
perusal and necessary action please.
End: - As above
Yours faithfully,.I" ~, .; ' ..•.•.... \
~r: j" .i_ (AJAY'KUMAR)
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,·.,CoPYforwarded for information and necessary action tq:-
1. PS to Central Provident. Fund Commissioner.
2. PS to FA & CAO.
3. ACC-ll (FM, Invest. & IMC), Head Office.
4. ,ACC-! (Pension), Head Office.
5: Regional Provident Fund Commissioner-l (FA), Head Office.
6. 00 (Audit), Head Office.
7.: Regional Provident FundCommissioner-Il (Conference), Head Office.
8. All Regional Provident Fund Commissioner-II (IMC), HeadOffice~
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Minutes of the 123rd Meeting of the Finance Investment &.Audit Committee (FIAC) held on 18.01.2016
1. The 123td Meeting of Finance Investment & Audit Committee was held on 18.01'.2016
from 11.00.A.M. onwards in the Conference Hall, 3td Floor, EPFO, Head Office, New
Delhi.
2. The following members/representatives were present in the meeting.
- ----Chairman, FIAC, Central Board and Central Provident Fund1. Sh. KK. JalanCommissioner
2. Sh. "Ieera La! Samariya Additional Secretary (L~E). Ministry of Labour &,
Employment, Govt. of India
3. Ms, Meenakshi Gupta. Joint Secretary & Financial Advisor, ~inistry of Labour &E_m.,eloi:ment!Govt. of India.
4. Sh. Sudhir Shyam Director. Deptt. of Financi~1 Services, Ministry of Finance,
as representative of Joint Secretary. MOF, Govt of India; as
. Domain Expert .~...--.--5. Sh.Balasubrahmanyam Member, Central Board, (Employers' ~epresentative)
Kamarsu "
6. Sh. Prabhakar J. Member, Central Board, (Employees' Representative)
"Banasure ,
The following members could not attend the meeting:
1. Dr. G. Sanjeeva Reddy Member, Central Board, (Employees' Representative)
2. shriTp. Chowdhary Member, Central Board,(Employers' Representative)- -,---i
In addition to the above, FA & CAO;EPFO Convener was also present during the
meeting,
3. The Chairman welcomed all the members and officers presenlin th'e meeting.
Thereafter the agenda war-a ta1<enup
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Itern No.1: Confirmation of the Minutes of 122nrf Meetlng ~f the Finance Investment
& Audit Committee held on 09.12.2015
The minute s Qf 1221ld Meeting of the Finance 'nv~stment & Audit Committee
he'd on 09.12_ 20 15 were confirmed.
Item No.2: Action taken ~eport on the recommendation I, of the 122M Meeting of
Finance Investment & Audit Committee. (FIAC) held 09.12.2015.
The action t~I:"en report as placed was taken note of by the Committee.I
Item No.3: Presentation on Investments in elF byexpert$.
Presentation on ETF was made by SSE, NSE; sa, Mutual Fund, CR1SIL and
Shri A. Rama Koteswara Rao (ex·S81 MF) in th~ meeting (copy enclosed).
The committee asked them 'to submit suggestiolj1s on asset allocation and- .'
ETFs other than Sensex and NIFTY ETFs for diversification in investment in
equity and related investments preferably within 10 days, IMC thereafter shall
compile the same and present before the committee in the next meeting.
Item No.4: Relaxation for extended CBLO borrowing up tq 30 days on ease to ease
basis by Chairman, FIAC/CPFC subject to ratifl~ation by the Board •
Relaxation for extended CBlO borrowing up to 30'"days was approved by the
FIAC which shall be further placed before the next CaT meeting .
Item No.5: Selection of Mutual Fund eTF manufacturer for'lnvestment of the ePFOsv
Investment In ETF.
It was decided to form a Sub-committee of the FIAC in order to select-Mutual
Fund as ETF manufacturer which shall cdmprise of FA&CAO,Shri. '
Salasubrahmanyam Kamarsu (employer representative) and Shri Prabhakar
J.Banasure (employee representative).The committee may co-opt any other
member as per the requirement. CRISIL shall assi,t the sub-c:ommittee in the
selection of the mutual fund as ETF manufacturer.
ltem No.6: CBLO borrowings transactions by the Portfolio Managers during the
period 21.11.2015 to 31.12.2015.
The Item no,6 was taken note of by the commntee.
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Item No.7: Continuation of Mis Chandabhoy & Jassobhoy as External
Concurrent Auditor (ECA).
It was decided to allow Mis Chandabhoy & Jassobhoy as (ECA) till
October 2016 and simultaneously start the process of selection of new. ' ,
ECA for which the same committee constituted for the selection ofMutual Fund as ElF manufacture shan be engag~.
t Item No.8: Rate of Interest (ROI) to be credited, to EPF Members' Accounts
• for the year 2015-16.
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Minutes have been recorded separately
The meeting ended with a vote of thanks to the chair.
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1&}lii'44 I HeadOfftceBbayJabyJ NI. Bhlwin. 14=Bhlkaltl earn. piasa. 14M Delbl~UOO§§
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IL /~No. Invest.V(123rdMtg.)lFIACl2015-1V...>.:...:J
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Date: .-2 8 JAN 20\6
ToAll Members;
Finance Investment & Audit Committee,
Central Board of Trustees, Employees' Provident Fund~.
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Minutes of 1ZJfd Finance Investment & Audit Committee (FIAC) held on 18.01.2016was approved by the Chairperson of thfi FIAC. In the above meeting F/AC h88 alsoapproved the extension of tenure of SBt, Mutual Fund for another 3 months ;.e. upto30.06.2016(S/.No. 7 of Item No.5 of ~genda refers).
Accordingly, the item no.S in the Minutes of the 12~ Finance Investment & AuditCommittee (FIAC) held on 18.01.~016 as approved by the Chairperson of the FIAC maybe read as below:-
IlemNo.!: Selection of Mutual Fund ETF manufacturer for Investment of the, EPFOs Investment in ETF.' ,
It was decided to form a Sub-committee p( the FIAC in order to selectMutual Fund as ErF manufacturer which $hall comprise of FA&CAO,ShrlBa/asubrahmanyam Kamarsu (employer representative) and ShriPrabhakar J.Banasure (employee representative).The committee may co-
. opt any other member as per the requirement. CRIS/L shall assist the sub-committee in the selectionof the mutual fund as ETF manufacturer.
FIAC also approved the extension of .tenure of S81 Mutual Fund fotanother three mcRhs Le.upto 3d" June 20~6 on the same fee i.e. @O.07%per annum.
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~s to Cen/1111 Provideni Fund CommIS$lon~~
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•. A·~c./.ACC-I (Pen$lon)i; Head Office~~ \1 \ \ (.,v'S. Regional Provident Fund CommiS$loner-1(FA), Head0 ceoW~D (Audil). Head "": ~,J{ \~1v( fIegIonal Provident Fund Commlasloner-ll lConfetence)'1 Head Offlce. ~~ \ ~ If.,
V 8. All Regional Provident Fund Commissioner-II (IMe), He1d OffICe.
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Action Taken
1:':·th Maetinu of FtAC22.03.2016
Item No2: Action Taken Statement on the minutes of 123,d meeting of theFinance lnves~ment and Audit Committee (F lAC) held. on18.01.2016
1.
(Item no. 6 of 123rd fIAC)
Sr Decisions/Directions of FIC~N~o~'4- ~ __~~' ~"
Presentation on Investments In ETF by Experts
Presentation on ETF was made by BSE, NSE, 581 MutualFund, CRISIL and Sh. A. Rama Koteswara Rao·(ex-S81 MF)In the meeting (Q)py enclosed). The Committee asked themto submit suggestions on asset allocation and ETFs otherthan Sensex and NIFTY ETFs for diversification InInvestment In equity and related Investments preferablywithin 10 days, IMC thereafter shall compile the same andpresent before the committee In the next meeting.
(Item no. 3of J.2?i FIAC)
2.
Relaxation for extended CBLO borrowing up to 30days on case to case basis by Chairman
Relaxation for extended CBlO borrowing up to 30 days wasapproved by the FIAC which shall be further placed beforethe next CST Meeting.
(Item no. 4 of J.23" FlAC)
Selection of Mutual Fund ETF manufacturer forInvestment of the EPfOs Investment In ETF.
It was decided to fOrm a .Sub-Committeeof the FIAt Inorder to select Mutual Fund as ETF manufacturer whichshall comprise of FA & CAO, Shrl BalasObrahmanyamKamarsu{employer representative) and Slut Prabhakar J.Banasure(employee representative). The eommittee mayco-opt any other member as per the requirement. CRISILshall assist the sub-committee In the selection of the mutualfund as ETF manufacturer.
(Item no. 5 of 123rd fIAC)
3.
4.(BLO borrowings transactions by the PortfolioManagers during the period 21.,11.2015 to31.12.2015.The item No~6was taken note of by the Committee.., ,
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An a9 nda item on the same Is beingplaced In the 124111FIAC.
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The ~enda item was placed In 211thmeet'jg of CBT held.on 16.02.2016. Theitem ot deferred and Is again beingplace in the 212th meeting of CBTsched~led on 29.03.2016.
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The qfflce order for consb'tutJon of sub-Comn ittee for selectfon of Mutual Fundmanuraaurer for Investment of EPFO~~ In ETF has been Issued to allmeml~rs vide thlsOfflce letter dated08.03 2016 and the process for selectionof ml.jtua~ fund a$ETF Manufacturer willstart $hartly.
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iThe _~enda item was placed in 211thmee~ng of CBT held,on 16.02.2016. Theitem 19ot deferred and is again being=...in .the 212th meeting of CSTsch uled on 29.03.2016.
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• Continuation of MIs Chandabhoy &'lassobhoy ~ot:~~~~yb:'. r;~e ti~1.1~ct~bB~• as External Concurrent. Auditor(ECA) meeti 9 was deferred to the next
. CST eetlng and the same Is beingIt was decided to allow MIs Chandabhoy & Jassobhoy plac~ in the 212th CBT me~tIngas (ECA) till October 2016 and simultaneous~y start schedpled to be held on 29.03.2016.the process of selection of new ECA for whIch the. i • -.
same committee constituted for the selection 0(' (Ii) CEfr in its 204tf1meeting; held onMutual Fund asm manufacture shall be engaged. 26.08f2014 had earlier decided that the
task ~Iection of ECAwith the assistance(Item no. 7 of 123rd FlAe) of co~ultant (Mis CRI51L) may be
can1ec out by FIAC. An agenda Item Inthis r f*"='-" is being placed In the 124thFIAC Ilneetlna.
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6.Rate of Interest (ROI) to be credited to EPFMembers' Accounts for the year 201S-16
Minuteshave been recorded separately.
The matter was placed before the,211thCBT Meeting held on 16.02.2016 forco+tlon which recommended theInterim rate of Interest at 8.8% for2015116. However, the matter wasrefe~ to the secretary, MOL& E ,videU.O. Note dated 19.02.2016 from CPFCfol~ed by a reminder dated04.0~.2016. The decisionof the MinistryIs stil awaited. .
(Item no. 80f 123ni FIAt)
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Item No.3 : Performance Evaluation of Portfolio Managers for the period 01.07:2~15 to31.12.2015.
.: :1. The Central Board of Trustees in its 207th rneetlng held on 31;03.2015 approved the
appointment of following five fund managers for managing the e,FO corpus for a period ofthree years:
i. State Bank of India.iI. ICICISecurities Primary Dealership Ltd.iii. Reliance Capital Asset Management Ltd.iv. HSBCAsset Management (India) Private Ltd.v. UTIAsset Management Company Ltd.
-rl,e New Portfolio Managers started managing EPFOcorpus from 01.p7.2015.
, 2. Further, the Central Board of Trustees in its 204th meeting' hel!d on 26.08.2014 had alsoappointed CRISILas a Consultant for Selection of New Multipl~ Fund Managers and theirPerformance Evaluation.
3. CRISILevaluates the performance of the four portfolio managers of EPFOon the basts offollowing criteria:-
• Portfolio Yields (800'"' weight) - Higher the yleld~ better score in overallperformance.
• Asset Qual1ty (200""'weight) - Asset Quality is measured using the credit qualityscoring mechanism allotted by CRISIl.to each security in the portfolio. a-see beingrisk free, have lowest credit score and corporate 8ond$ are aSsigned progressivelyhigher score based on ratings. lower the score better is ranking.
(I) ~e cumulative performance of the PMs basing on auregate perio,rmance scoreand portfolio yield for the period i.e. 01.07.2015 to 31.12.201S is as Llnder:
AureBate Performance Score (Out of 100)
Portfolio Managers period 01.07 .15 to 3i.12.~S (Rank)'UTJAMC 90.68% (1)l-Sec PO 90.60%(2)Reliance CAMl 90.46% (3)HS8CAMC ,90.32%(4)S81 ' 90.16%15)' .
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Portfolio Yield (85% weight) ,-.'
Portfolio Managers Period 01.01.15 to Period 01.1q.15 to 31.12.1530.09.15 (Rank) (Rank) 1
Benchmark Yield% 8.34% 8 25%ICICISec. POltd 8.43% (1) 8.4 0%(1)HSBCAMC 8.38%(2) 8.4P% (1)
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SBI 8.37%(3) 8.38% (2)Reliance Capital 8.31%(3) 8.~1% (3)AML :
UTIAMC 8.37%(4) 8.38% (2)
(III) Cumulative yield comparisonUuly. 2015 to December~ 2015}
Portfolio Manager Yleld% BenchmarkI Yield RankII
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ICICISec. POltd 8.41% 8.29%I
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HSBCAMC 8.39% 8.29% 2UTIAMC 8.38% 8.29% I 3SBI 8.37% 8.29% I 4Reliance Capital AML 8.37% ' 8.29% 4
OVerall,EPFO 8.38%II
Kg observations on the Performance;
1.. All the Portfolio Managers have outperformed above the benchmark in all two quarters,I
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2. For the cum\Jlative period July 1, 2015 to December 31, 2015~benchmark yield was8.29%. All portfolio managers outperformed the cumulative ~enchmark yield.
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3. i-see POgenerated the highest yield of 8.41% on account of~elatlvely higher exposureto high-yielding SOls, PSUand PVTbonds, among portfolio ~na8ers.
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The Item Is placed be/ore the FIAClor perusal and In/prmatlon.• I
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Item No.4: CBlO borrowing transactions by the Portfolio Ma~~ers during the period" I01.01.2016 to 29.02.2016.
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Pursuant to the recommeiidation of CBT in its 204th M-e.etingiheld on 26.08.2014, theMinistry of labour & Employment vide its letter no. G-20025/1/2014-~S-1I dated 12th May, 2015approved borrowing of funds from CBlO for participation in Prlmaryi Auctions of GovernmentSecurities and Corporate Bonds. Accordingly. the direction of Govt. o~ borrowing of funds from,
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CBlO was communicated to all Portfolio Managers, that Inter-alia mentioned follOWingconditions:
a) No borrowing will be done for more than 15 days.b) Prior to entering into such transaction, the Portfolio Manag~rs shall intimate through
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email to Investment Monitoring Cell (IMC), at EPFOHead Office the details of proposedI
borrowing to be made and the matching purchase of security~ The proposal should alsocontain the expected profit/gains from the transaction.
c) The Portfolio Managers shall report full outcome of the transaction to the IMe after theborrowing is closed.
d) The IMC shall compile all such transactions and place the same before FIACin its nextimmediately following meeting.
e) The outcome shall also be placed before the Board for infqrmationin next followingmeeting.
2. The information of the CBlO borrowing transactions till :31.12.2015 done by the,
Portfolio Managers has already been placed in 123nd Meeting of the ~IACheld on 18.01.2015.,
3. The CBlO borrowing transactions for the period 01.01.2016 to 29.<>2.2016have been done inrespect of following investments: '
I. G. See(8.13% GS22.06.2045, 8.24"GS 10.11.2033)II. SOls (Uttar Pradesh, West Bengal, Telangana Haryana, Odis~a, Assam)III. PSUBonds ( Infra/Basellll Tier Ii of Various 8anks i.e. 581. Qank of India, Canara Bank,
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lOBt Bank. State Bank of Mysore, P,.B Basel III Tier ",Bonds) :, , '
IV. Private Bonds (Basel III Tier II of YesBank)
4. The details of net gains of EPFOof the above said perled by respective PortfolioManagers are as under:
51.No. Portfolio Managers Net Gains of EPFOIn Rs.1 SBI 14,43,902.682 i-see PO 57,23,'528.623 "eliance Capital AMt ,
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Net G,alnsof EPFO Rs. 1,38,79,828.57
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The details of all transaction done by the respective Portfolio Managers during theabove said period is placed as Annexure·'A'.
S. It is highlighted that there were no CBlO borr~.wing transactions by HSBCAMC and UTIAMC during the said period.
Net Gains of EPFO during the period from 01.01.2016 to 29.02.2016 Is Rs.1,38,79,828.57/-
The Item Is placed before the. FIAC/of.ln/orm(ltlon. The some shall also be placed Inthe next CSTmeeting far In/ormation •
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Item No.5: Alternate strategies of Investment in ExchangeTraded Funds
1. The Ministry of Labour, Govt. Of India vide notification no. 1071 (E) dated 23rd April,2015 has Issued a new Investment Pattern for investments by EPFO.This new Pattern ofInvestment 2015 prescribes 05 to 15% investments in equity and related investment.The Board in its 207th Meeting held on 31.03.2015 while recommending the saidPattern decided to invest 5% of the total investments made during the veartn Exchange·Traded Fund (ETF)of Nifty and Sensex.
2. Accordingly, investment In ETFstarted w.e.f from 06th August 2015 through SSI MutualFund which is the ETFmanufacturer for EPFO.
3. An agenda on Update on Investment in ETFwas placed before the 209tb C8T held on24/11/2015. The board decided that that the issue of long term market trendsnationally and internationally be discussed in detail I" next FIAC meeUng.Accordinglyan agenda on the investment in ElF placed before the 122nd FIAC held on 09/12/2015.The FIAC dedded that the Investment In ETF has further to be reviewed.' For thispurpose, CRISIL,NSE& SSEwere requested to make a separate expert presentation inthe next meeting of FIAC.
4. In the 123rd FIACmeeting held on 18/01/2016, Presentation on ETFwas made by SSE,NSE, SSI Mutual Fund, CRISIL and Sh. A. Rama Koteswara Rao (ex-S81 MF). Thecommittee asked them to submit suggestions on asset allocation and ETFsother thanSensex and .NIFTY ETFs for diversification in investment In equity and relatedinvestments.
5. Accordingly, suggestions from participating experts were received as follows:
1. SSIMF(Annexure-'A')
iI. SSE(Annexure-'B'l
ill. NSE(Annexure-'e')
iv. CRISll (Annexure-'D')
v. Ramakoteswara Amara (Annexure-'E')
i) SBIMF:
. SSIMF gave global perspective on Retirement Fundl"vestment wherein it stated thatRetirement funds in developed markets have a significantly higher allocation to equities. Itobserved that in the short run, investment in equities in the range of 5%-15% of the freshaccretions will not have significant i~pact on the overall· portfolio. It further observed that inthe long run (10 years rolling), equitY returns have outperformed inflation by, at least 5%'or
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•more for almost 85% times. In terms of suggested investment strategy for EPFO, SBIMFsuggested:
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a. (Pure Beta) Equity Investment to the tune of 7% through Exchange Traded Funds likethe ones based on Sensex and Nifty as EPFOIs currently doing.
b. (Smart Beta) Equity Investment to the tune of 3% through speclallzed ETFsbased oncertain themes or factors viz, minimizing volatility, equal weighted, high dividendyield etc. This could be the next step for EPFOIn terms of Its foray In equity markets.
c. (Alpha) Equity Investment to the tune of 5% through actively managed fundswherein EPFOwould have to select dedicated fund managers .
Ii) BSE:
BSE_in their presentation, have discussed the back tested risk return profile for: 100% debtportfolio, 95% debt and 5% equity mix portfoliO, 90% debt and 10% equity mix portfolio, 75%debt and 25% equity mix portfolio, 50% debt and 50% equity mix portfolio, 75% equity and 25%
- debt mix portfolio, 90% equity and 10% debt mix portfolio, 95% equity and 5% debt mixportfolio, 100% equity portfolio and presented results for 3 year horizon, 5 year horizon, 10year horizon and 14 year horizon. Their back tested risk return profile for above scenariosshowed that risk adjusted returns are maximum for 7.5% debt and 25% equity mix portfolio for14year horizon.
They further highlighted diversification through use of passive equity investing strategies (ETFS)which included: Sensex, AU Cap, large Mid-Cap, Dividend Stability Index, Mid-cap Select,Enhanced Value, Low Volatility, Momentum and Quality.
nn NSE:
The suggestions by NSEare summarized asfollows:
a. The long term equity investment appears to be the approach followed even by theglobal pension funds to earn relatively higher returns on their portfolio. EPFQshouldcontinue to invest at regular intervals in equity markets to minimize the Impact of shortterm volatility. For the- initial years, EPFOmay continue to invest 5% of Incrementalaccretions in equity. Based on experience gained in equity mar.kets,accountlng andmanagement, EPFOmay increase the equity investment to 15% over next 5 years.
b. The EPFO'sapproach ofstartlna the equity investment through broad based indicesappears to be sound investment decision. The higher allocation to the broad basedindices may be continued in the initial few years.
c. Going ahead EPFOmay consider investing ETFsbased on other board based indices.strategy Indices an4.~hematic indices. It is advised to refrain from sector based ETFsatthis stage. Globally, alternative weighting methods of index constituents have emergedwhere weights of index constituents are based on factors like low volatility, quality.
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These indices may also be explored. Some of these indices have 'already been developedfor investment evaluation by EPFO.
Iv) CRISIL:
Following is the summary of suggestions as discussed during the FIACmeeting held on January18,201?:
Allocation to equity Investments:
• Based on historical returns, equity Is one of the best performing asset class overlonger investment horizons and also, the risk of loss decreases with increase ininvestment horizon. For instance, S&P BSESensex index has given average 15%annual return since inception (1979). Also, S&PBSE Sensex index has not givennegative return in any 15 year period since inception and 93% of times returnsare more than 10%. Globally, 30% is the average allocation to equity by pensionfunds. With 15% inc;remental allocation to equity, overall allocation to equity inEPFOwill reach 30%by 20GO (in line with global average), Hence, there is a needfor higher allocation of 15%to equity.
• Other methods for allocating funds to equity include options like leaving thechoice of equity allocation to the investor or the life cycle option which adjuststhe equity, allocation based on the age of investor. '
,Diversification of equity investments:
• Direct equity (th'rough selection of portfolio manager/, managers): It hasadvantages like scope of alpha generation through active fund management andlower cost of fund management. But, tl:1isoption requires infrastructure anddedicated investment and research and risk management teams, EPFOcan lookat appointing dedicated portfolio managers in case a decision Is taken to makedirect equity investments.
• Units of equity mutual- funds: It has advantages like scope of alpha generationthrough active fund management, expense charged to net asset value of schemeand ease of Investment at day end net' asse~ value. But, this option, hasdrawbacks like higher fund management cost, potential adverse Impact onperforman~e due to irregular inflows and redemption pressure in MF fromexisting investors.
• Exchange traded funds/ Index funds (Sensex/ Nifty): Expertise of equity market Isnot required as fund is managed passively. It has drawbacks like returns beingclose to underlying Index with no potential to generate alpha and compulsoryexposure to sectors or stocis with negative outlook.•• •
v) Ramatsoteswara Amara:
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•The summary of suggestions by Shri Ramakoteswara Amara were as follows:
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• Detailed guidelines for safe investment decisions with objectives are to be formulatedfor monitoring, review and continuance of the investments made. •
• The present SIP investment system has to be improved by following the support andresistance levels for each trading session.
• As Nifty /Sensex provides only limited opportunities and some of the companies in theseIndices have had suffered down gradation due to environmental changes. The scripsthat are to be selected for investment should be the best quality Scrips. The emaHdetails certain parameters for selection of the best scrips.
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2. A meeting of Fund Managers, CRISIL,BSE,NSE,and SBIMF also took place with Honorablelabor Minister regarding the EPFOinvestments in equities on 26.2.2016 wherein' consultantCRIStl made a presentation (Annexure-'F') on the said matter. It was suggested that alternateindex strategies like: Low Volatility, Value and dividend yield, Growth based indices should beevaluated.
3.BSE had also sent proposal detailing certain ETF strategies, vlz, equal weight, dividendstability, low volatility, momentum, quality and enhanced value.The proposal as sent by SSE(Annexure-'G') was analyzed in the Ilght of conditions governed by the Investment Pattern asnotified by the Ministry of Labor and Employment vide its notification dated 23rd April 2015(Annexure-'H').· The observations were as follows:
I. Total of Six, strategies. were proposed and compared to BSESENSEXas discussedbelow:
a. Equal Weight: Each company in the Equal weight SENSEXis given equal at eachrebalance. This Index has 30 stocks. . .
b. Dividend Stability:' This index is designed to include companies out of the S&PSSELarge Cap, thatpaid. dividend consistently over 7 out of 9 years. This indexhas 55 stocks.
c. low Volatility: The S&P BSE Low Volatility index designed to measure theperformance of the 30 least volatile stocks in the S&PBSE Large Mid-Cap index.
. The index benchmarks law volatility or low variance strategies for the Indiastock market.This index has 30 stocks..
d. Momentum: The S&P SSE Momentum Index is designed to measure theperformance of securities in the S&P SSE Large Mid-Cap index that exhibitpersistence in their relative perfor,,:,ance. Jhe index comprises constituents
•. with high risk-adjusted price returns momentum .scores. This index has 30stocks.
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•e. Quality: The S&P SSEQuality index is designed to track high quality stocks in the
S&P SSELarge Mid-Cap index by quality score, which is' calculated based onreturn on equity, accruals r~tio and financial leverage ratio. Companies,assignedhigh quality scores seek to generate, higher revenue and cash flow than theiraverage counterparts through prudent use of assets and finances. This indexhas 30 stocks.
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f. Enhanced Value: The S&P SSEEnhanced Value index is designed to measure theperformance of the top stocks in the S&P SSE Large Mid-Cap index withattractive valuations based on "value scores" calculated using threefundamental measures: book value-to-prlce, earnings-to-price, and sales-to-price. This index has 30 stocks.
II. The performance of all but one strategies was back tested (with a tlmeframe endingat September '30,2015) which Is summarized In the table below (since the performanceof Equal Weight strategy was back tested with a different timeframe ending atNovember 30,2015, its results are discussed at polnt no. IV):
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nCumulative 3mo ~5.45%' -3.66% ' 1.37% 2.22% -0.89% -8.43%Returns 6mo -5.47% -5.12% 2.43% 5.20% -0.06% -14.52%
• 12mo -0.43% 1.70% 14.64% 18.43% 14.80% -20.41%Annualized 3yr 13.41% 14.21% 22.34% 21.26% 21.33% l.66%Returns 5yr 7.07% 8.08% 15.30% 16.13% 17% -3.43%
10yr 13.32% 14.96% 20.52% 17.41% 20.10% 10.54%Annualized 3yr 12.8% 13.1% 11.5% 12.3% 11.40% 29.4%Volatility 5yr 16.2% 16.5% 12.7% 14.3% 12.9% 30.4%
lOyr 24.2% 24.6% 20.7% 26.2% 21.6% 35.2%Risk 3yr 1.04 1.08 1.94 L73 1.87 0.12Adjusted Syr 0.44 0.49 1.21 1.13 1.32 -0.11Returns lOyr 0.55 0.61 0;99 0.66 0.93 0.30
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ilL It may be seen that Low Volatility Index, Momentum Index and Quality Index haveconsiderably high Risk Adjusted Returns compared to Sensex. Enhanced Value Ind~xdoes not seem to work well for Indian stock market. Stocks contained in the DividendStability Index with Risk Adjusted Returns profile similar to Sensex have better diVidendpaying profile than their counterparts contained inSensex. Also, in a downward cycle,'low Volatility Index is likely to have lesser downside vis-a-vis the sensex,*.
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•IV. The 3yr, Syr and 10yr annualized returns for Equal Weight Index were 11.61%,5;04%and13.38% respectively. The risk adjusted returns for same period were 0.75, 0.29 and0.54 respectively. The performance of Equal Weight Index was inferior to the Sensexbased on back testing of data. . : .
V. Given that the Investment Pattern Notification dated 23rd April 2015 of the MoLEallows investment onli in those shares listed on BSEor NSEwhich have: (I) Marketcapitalization of not less than Rs. 5000 crore as on the date of investment; and (ii)Derivatives with the shares as underlying, traded in either of the two stock exchanges;the BSE team was also asked to analyze the impact of these conditions on theperformance of the above mentioned strategies. Accordingly, it was found that aboutone fourth of the constituent stocks of the Quality and Momentum Indices were non-compliant with the EPFO'sguidelines, while in other three strategies, vlz, LowVolatilityIndex, Enhanced Value Index and Dividend Stability Index, about 5% of the constituentstocks were non-compliant. The Equal Weight Index complied fully te the EPFO'sGuidelines. For any ETFstrategies index to be created for EPFO,these two conditionsshall have to be complied with by the Index creating! manufacturing agency.'
VI. Reference may also be drawn to point (c) of Category (Iv) as mentioned in theInvestment Pattern notification dated nrd April 2015 of MoLE, wherein investments areallowed only in Exchange Traded Funds (ETFs)/ Index Funds regulated by the Securitiesand Exchange Board 9f India that replicate the portfolio of either BSESensex Index orNSE Nifty 50 Index. Accordingly. for implementing any of the above or similar ETFstrategies, suitable amendments would need to be done at the level of CompetentAuthority.
. 4. NSE had sent alternate ElF investment strategies for EPFO (~nexure-'I') which includedDividend Opportunities~ Low Volatility, Quality and Value, the results.ofwhich are summarizedbelow:
Index Returns and Volatility (as on 31, October, 2015)Index CAGRReturns ,%) Volatil!tv (%1 latest Dlv.
5 year 1 year 5 year 1 year Yield (%)Nifty 3.48 -10.84 16.27 .16,78 2.94Dividend.Opportunities50Nifty Low 11.24 14.11 12.66 13.8 1.78Volatility SONifty Quality 12.9 5.99 13.88 14.28 1.5530Nifty SO 6.72 ·6.86 17.59 17.22 2.06Value 20Nifty SO 6.03 ·1.27 17~02 16.1 1.41 .
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- I5. Since the points discussed above are of technic~l.nature and declslons polnts emanating for:-
it needs to examined by the experts it is proposed that a committee of technical experts-that may include CRISIL,SBIMF,BSE,NSEmay be constituted to evaluate the alternate ETFstrategies mentioned in point no. 3 and 4 above and give final recommendations. The FIACmay also include other technical experts In the committee.
, Proposal: Para 5 may be approved.
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The Employees Provident Fund' Organization, Head OfficeShavlshya Nldhl Shavan/14 Shikaj! Cama Place. ,New Deihl -110066 .
January 21, 2016
Sub: Asset Allocation and Dive ,~ification if ~<fm2Q16Dear Sir '1 S\:l.-
\ Diary No. )IwoUld like to sincerely thank you for giving our team an opportunity last week to present on asset'allocation and diversification via indices before the Finance Investmen~ and Audit Committee.
:.:.:'e ~ ,-M:'i,;\\l\' ~"~
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It is Indeed a great feat for the EPFO to initiate the equity Investments vlaETFs and we are glad thatthe S&P SSE SENSEXis a part of the same. We took this opportunity to present and demonstrate
Asset Allocation: Various strateSies to showcase how performance and riskadjusted returns differentiate across allocations supporting them with back testedresults over the past few years.Flagship Index: T~ S&PSSESensex is the flagship index for the Indian stock marketdesigned to give returns of a broad and liquid segment of the Indian stock market.The S&P SSESENSEXindudc=s stocks based on size, liquidity and sectorrepresentation with speclftc attention to exdudlng iII.q~ld stocks and avoidinlsector concentration.
- Dlvers1flcGtlon: Indices are designed to capture dlffe~ent market dynamlcs- size.sector, theme, strateIY or factor which provide nec.,ary diversification for theportfono. Some of ourlndlc:es such as the S&P BSE~rge Mid cap Index. S&P SSEMidcap Index and the S&P BSEDIvIdend Stability Index have demonstrated differentperformance to·the s&P BSESENsEXin the past maliket cycles of both trouShs andpeakL '
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~'.- Smart Setcr. The interest for factor indices or smart beta is of irowing ,Interest that .
includes our newly launched factor indices such as $&p SSE Quality Index, S&PBSElow Volatility Index, ett. which provide comparative results across historic marketcydes vis a vis the market benchmark, S&P BSESENsEX.
. ,:1,.i' :fltt[P ~t..~ ~. '. We do hope this presentation provides a perspective for future options to the EPFOto allocate ,their• , funds to a range of S&P SSE indices.~l •. ~, '
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Our company, Asia Index Private Umlted, which Is now calculatinl and maintaining the S&P BSEco-• .' I
branded fndices, Is uslnl the best International practices. to create rules ~ased Jndlces supported byari"~d~x Committee that ensure Its adherence. Adherence to Intematio~alco~pllance standards set
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by IOSCOover and above stringent internal rules and processes add to t~e Independence of theIndices generated~We have strengthened our local Index team and are workins on raisins awareness via knowledge. ,
banks and InVJstor education programs with al\ our partners and dlen~. .We combine both local experience from 'Bombay Stock Exchanse, ranked the lar,est exchanse in theWorld bY number of companies listed and over a 115 years of index ex~ertlse viaSPOJI (Standardand Poor's Cow Jones 'ndlces) who have more assets Invested In products based upon their Indicesthan any other provider in the world. .SPDJIhave 'over 1,000,000 Indices covering a wide tange of asset dass. across the Slobe.The S&P branded Indices have (Ner 600 ETFsworldwlde with assets ovtr USD 800 billion (as ofDecember 2015), an amount far &reater than any Index provider globaDy•.
It Is our aim and endeavor ~oleverage on our strengths to offer and support our clients with moresolutions in the indices via different S&PSSE Indices In order to provld~ options that can work bestfor them.
. We are keen to support and work with the EPFO to offer suitable options that. assist In the• I
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Yours Sincerely
'-~~~Alka Banerjee . \MD and CEOof AIPL
P.S. Entloslns the copy of the presentation for reference.
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: Indices as an .: Information Tool for'. Port-folio Diversification andAsset Allo'cation
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01 INVESTMENT AND AVAILABLE ASSET CLASS
02 PORTFOLIO DIVERSIFICATION.
03"0405
ASSET ALLOCATI'ON
S&P BSE SENSEX AND EPFO" .
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"Even though investing seems risky. not investing means ta~ing risks, too, when youconsder the long-term threat of inflation," says Certified Fin~cial Planner professionalPeter Lazaroff, CFA, portfolio manager at Acropolis Asset Management in St. Louis. "Ifyou don't grow your money, you may not be able to afford ~ings in the future. 'So, you'invest to grow wealth and preserve purchasing power." :
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potential Asset Classes:• Eq~ities (stocks): Buy shares 01a companylbusiness. n equity investment can be
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pillow.j • • Real Estate and Commodities: 'Owningsomething ph sicallike property. natural~O resource commodities and precious metals like gold.·
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» Experiences relatively lesser volatility as compared to equity (jed on historical data).» Deals with Interest rate and relnvesbnent risk., '» Does not participate in the growth of the organization that ha borrowed. '
Eq ulty: In an equity investment, the Investor typically purchase shares of ompany In anticipation of capitalgains and/or dividend income: Equity investments are often characterized high risk-high return and mayalso act as a hedge against inflation due to the potential for relatively hig er returns over longer term.The investor typicatly •
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TABLE OF CONTENTS
01 INVESTMENT AND AVAILABLE ASSET CLASS
02 PORTFOLIO DIVERSIFICATION
03 ASSET ALLOCATiON
04 S&P SSE SENSEX AND EPFO
05 TOPIC5
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.' Diversification is a widely known investment strategy that Is Intended to heJpmitigate the risk associated with unpredictab1lity of ma~kets. It tends to beespecially important during times of increased uncertainty.
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&ACK-TESTED INDEX PERFORMANCE: DEBT AND EQUITY
-saP BSEIndia 10Yur Soveelgn BoncI1ndelC -s.P ~e SENSex(TR)1,1)0 4••••••• _. ••••_._* __ ~_ __..~_ __ _--.--- ------~ ---.- -.- ..--.-- -.----
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10 year Sovereign Bond Index to rePresent the 'debt' piece.'Sow-c;c A$jII/Id.- No 1M.;.,.,.•• Dec:MIIIIr~. 2001 ..., 10o-N 3t. 201.5: Pest~ II no gua'IfIfN 01W. ffSUIL. C/InnllWdtd •••• purpoua. PiliP*fonn,",i$1IO QIInnIIt dANt,...,. n.tdtlltl",. rotoct/IyprlfIdtIII ~J:lctieDI,.ftII.a. PIIaI •• !IIePltlbtJnIllCt ~"'" end oI/111tdocrlmlnt formatt ~
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Performance of various strategies during last 14 years:Back-tested Data from December 31.2001 thr9U9h December.31, 2015
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BACK-TESTED RISK RETURN p'ROFlLE
14 year
Annualized· Returns 6.ft 7.5% 8.1% 13.0% 17.1% 17.5% 17.9%
RIsk (volatility) - 0.5% "-6;~'" 6.4% 12.1% 20.7% 21.904 . '23.10/0
RIsk adjJsted returns 1.04 1.17 1.26 1.08 0.82 0.80 ·0.78
Annualized Returns 6.1% 6.5% 7.0% 10.0% 12.0"/0 12.2% 12."%
Risk (volatility) 6.]qI, 6.6% 6.7% 12.7'Ma 21;9% 23.1% 2•••••%
RIsk adjusted returns 0.90 0.99 1.05 0.79 0.55 0.53 0.51
AnnuaIl1ed Returns 6.8°A, 6.8% 6.8% 7.0% 6.7OAI 6~6'" 6.6%
Risk (voiatIIlty) 5.6% SA% 5.4% 8.ft 14.8% 15.6% 16."%
Risk i1cIjuStedreturns 1.21 1.26 1.17 0.79 0.45 0.42 0.40
AnnuaUzed Returns 6.9% 7;:zoA, 7.5% 9.6% 11.6% 11.8% 12.0%
RIsk (volatility) 6.3% 6.2% 6.111A. 8.8% 14.111A. 1".8% 15.5%
RISkadjusted returns 1.09 1.16 1.ll 1.09 0.82 0.80 0.78
10 year
5 year
3 year
Source: ASIa Ind •• P-.r. llo1Sa.:/l1.;t.Ija/, silK. 0tc:tmbIr 31. 2001 uti ioo.c.no.. JI. 2015. Pilli/ ;;..,I,;",,~ IS no gIW""'oIWt'"~' CII¥fS¥'tptC ••.!I!'! I:y,!lJstr •••• putpO$ts. p..,pedcjrrnarw;e IS110gvilfar.t~~01Mlllr IVw;1.. "_"''''''i "liJ •.tIlto;t ~ "';t",i(M ~illfYiT.v":9 f."Itl)Sf • .If 1Ir.~#.a/ ~ 31l1li:em::! ~~ :l.:~.;m,.'l!f-;,man !n/ofma!i'.ln.",t iIIdH,.vns, inI;Wr.g~aI petfcnn,lfIC'. .~. , • '-;:Oil ';"l'es~.,<;••1;' '1.'1'". 0, .~.( ':" :"':"~';:~ -:"QIE· Ar:!"\.Il.: • ~"~r$o;Ij:' ',) ~ot::t"i..;r l'i" ':.;~ .!!'~-.::'"" -: ..•~• ~·:~~~.~·JflI;rt'~'ilftt" ;r~1.'W"~·ef'lu;.-cr'l't II " ;.\r' ;''':',If.J)rfl ·•.•,t;;" ••
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• Performance of various strategies during last 14 years:• Back·tested Data since Oecember 31, 2001 up to December 31, 2015
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RIsk adjusted returns 0.90 1.0l 0.62 0.51
-'nnua\lzed returns i~ ~ 6.9% 6.6%
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S&P,~3SEINOICES •
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.ALLOCATION STRATEGIES:BACK-TESTED RISK RETURN PROFILE
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••• Indices are designed to capture differentsegments of the market - by size, sector, ~
factor andlor assetctass. •
•
Diversification is typically considered an important investment strategy for long term' ,ofinvestments . . CDiversification tends to be incorporated according to asset class, size, sector and ~factor, •
•. Diversification is intended to provide hedging ofidiosyncra.tic,~ single stock risks and •the benefits of exposure to different segments.
. . .
In the following slides, we intend to demonstrate the difference in index 'performance' Cduring different market cycles using various 'equity' sap BSE indices.
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- __ ClIO "_~TIt
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:IIRecovery fromFInancIal CrIsis .
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S&P,!'3SEINDICES
01 .INVESTMENT ~ND AVAILABLE ASSET CLASS
02 " . .
PORTF0L10DIVERSIFICATION
03 ,ASSET ALLOCATION
04 S&P.BSE SENSEXAND EPFO
05 TOPIC 5
• For~inar¢"P:dft~als Notlcrl'uli6C~,~E1AAVPIItmiIIiOII.1tjIIIIII Of.1IWII .., ~ '"'" "" P"M"''*'' '",,"," ill, ""'*' ~ ~ SIPCowJallelIllllicla."'~"'- ,.: • "_'-~~~""" :':S ---=~_"" __
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~SSET ALLOCATION ,,• Asset allocation is the process of developing a customized, diversified investment . t
portfolio by strategically mixing different asset classes in varying proportions -. ' •. .
• . It aims to reduce the "ups and downs" associated with investing and make it easier-to ,stick with investors' long term investment objectives and. avoid market timing. f
• Asset allocation includes combining asset classes such as equities, bonds and cash 4in varying proportions within one customized, diversified investment portfolio that is •suitable to therisk-retum profile of a given investor .
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S&P,i)3SEIN oices
A.LLOCATION STRATEGIES: DEBT AND EQUITY .•• CONTINUED
• ' The debt only (100% debt) strategy noted the least portfolio volatility and also noted ,, the lowest annualized performance 'ov~r the last 14 years.
:.. "',., ... Amongthe various strategies discussed, as allocationJo equity increases (S&P SSESENSEX), annualized performance and risk adjusted returns improved over last 14years up to the strategy 125% equity and 75% debt, after that risk adjusted returns 'noted decline. ,/:8
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This is possible because as one asset may perform strongly while the other does not,S&P BSE SENSEX Index (Equity) and S&P BSE India 10 year Sovereign Bond lndex(Debt) noted correlation of daily total returns, as low as 0.068797 from Dee 31 t
2001 to Dee 31, 2015. /: .'••••••••: (
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ASSET ALLOCATION
.A=ss.t aJlocaOon strategle. are considered key driver ofInvestment resu.lta
ScNrce: BliMQl\ Hood, 1JMIIIorMr.".. ••• iiiIfta Of POI\fclio I'IIffOllllilllC4t". flfl3llCla N".Jc:IurNL~ 1986; BrirIIorI. SIngef • .....",.,. -o-rrir.aI~oI PontcIIoPwlOlmatlC.1t An UpdQa.-,I'inIInci;IAm/ySISJOIJIIIQI. ~ '91',
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•SoufC1l: Brinson. Hood, Beebower. "Determinantl or Portfolo Perfotmance-, Financial ~aIyata Joumaf. July-Augost 1988; 8rinson, SInger.Beetbower .."Oelerminents01portfolio Performance II:AnUpdat~-. financial AnalysbJownaA. ~e1991. Excerpt tom Ihepaper on 'The.potential benefitsof diversifteatlon'by Goldman Sachs ..
Generally significant percentage of the .•volatility of investment performance is drivenby asset allocation decisions .I, .t
•Factors such as when investors commitassets and which securities they buy areconsidered to have a relatively small Impact Ion long-term invesb'nent results.
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fir F""' •• "...,....NoI!ctPv~~. PROPRIETARY.P.Imiuian IIIIIjt.nICI'Qs~tuNl JllYconIIftt"""~~""" M~ lIIIII'VQIoIS.,Oow Jones 1IIIIiI:a. •·. ~. "~ ..•••'-'*;.;r...a. ..••. ~ .~'.• ".',.-.' >;, i. "x._.s •..•• ,•. :;a.tl
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Apart from a few other factors, asset allocation often results from overall balancingamong the following considerations:,1. Goal.~~Jn9IucJ~s'ofl9J?Jm.9bj~tivese.g. - meet liabilUi~s..... .2. Time horizon - The investor often seeks to balance longer term objectives with
shorter term considerations. Generally, time horizons include a minimum of one ormore than one market cycle i.e. 3 to 5 years, to allow sufficient time,for a givenasset aHocation strategy to work through a market cycle.
3. Risk tolerance le"el- An investor defines the level of risk s/he is willingto take inan effort to generate returns .
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tS&P~3SE' ,
INDicesTABLE OF CONTENTS·
01 INVESTMENT AND AVAILABLE ASSET CLASS
02030405
PORTFOLIO DIVERSIFICATION
ASSET ALLOCATION •4.
S&P SSE SENSEX AND EMPLOYEES PROVIDENT FUND ORGANIZATION · t44,••
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SACK-TESTED ANNUALIZED RETURNS:er,'PLOYEES PROVIDENT FUNO ORGANIZATION ANDS8P'BSESENSEX PRICE RETURN OVER LAST 36FINANCIAL YEARS(31 MARCH 1979 T031 MARCH 2014)
S&P.p3SEINDICES
• S&P SSE SENSEX • EPF Interest rate
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Chana andgrapha ate providedforJuslralive putpOSes.~ ~"I)O.guarantee 01future redS. Thesea.arts IIIICIgraphs may reW hJpoIhetIcaIhlstollcat •performance. M Inbmation pmente<I prio( to the liIIII'IdIdale 1Sbac:%..•••. 8acIt-tesled pttfomIance is not actuaIpeIfomIanc •• but Is 1\ypcIItIeIIcII.The back-test calculalions <'are based on ItII SII'IIImeIhoddcgy II1itwas IneWeetwhen ItIe index W8I oIIIdIIIr 1Iunched. •••••• , • sbouId be noted lhat ItII historic CIIIcuIIIIonIof 1ft EccnamIc Inde. maychang. 110mmonth 10month based on ntYisions to thelXlCledyingeconomic data used IIIItIecabIaIIon of the Inde~. t.AI PL deRnenadout dales to astlIt our dienIs in providing transparencyon !heir Pf')duets.The Flnt VaI.ueDate Is ItIe lint day forwhiehth.re " a calculated value(either ••• ort.back-tasled) lor a given Index. The Base Date is lilt date at whicII the !r.<lexis set at a -llxe6value for"atIon purposes. The launch Dale ~ the date upon which theVIIIu ell 01 an Indexate III1tCOIIsldlWedlive: Ind•• 'filii •• prG'fIdedfor any dati 01 lime period prior 10the Index', launch Date are considered bacll-teslecl.AlP!. dellnes the launcllDate as the dale bJ 'Nhkh thIt vaIu" of an indlt~ are known to hive been llIIeased to ItIePUblic.for example via the company. pulk website 0111 dtta r.ed to .ldemaI parties. •
Anothorllm~ of usingbacIt·tested Infonnalloll II lhat the baick-tutiOd ~ " getl¥aly prepared willi the beneII of hindsight. 8adI-IIItId ~ ~ the .appllcalloit ofltleindexmell1odology IftItsetectlon oflnclu c:aduents InIIIndsfght No hypolhetbt /KIORIcan comP.i.e, accountforltle impact oflnandalltslt IIIactual tradingFor e;qmplt.ltIere InIU'llen)l,ll fac:tofs related to ItIe •••• lIIted income, orconvnodities ~ In general whIc:h cannot be. and 11M' not _1CCOW'Ited for in the~ ofllle Ir1daxin/onnallon sat b1II, IIoIwh1ch CIft.atrec:c ICtUIIIptIbmance. .
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Past perfoonar;ce01 the Index is not an Indication or future IlISIIts. Ptospedlvt application or the methodology used I!Jcons1ruct the Index may nat ftIII.t1n perlcIrmancecom mensurate wiIh ItIe back·test retufl'$ shown. The bac:k-test period does not necessarIy eonespond to the enUre available history of the Ind& PIeIM •.• to ItItmethodologypaper lor the Indu. avaIatM at aw,.J,CC/D and WW'!f.as!ajndex Cl!,!nforlllOlt~ about \tie Index. InclUding themanner Inwhldlltla ~.lhellmlng d such",be Iandng. a1Ierit foradditionsand deletiOns,aswtI as aI index ca1CuIaIIanI.
tIndex retuma Ihown do not repmenl the rIS\Its 01aclIiaI tradIng'oI lnvelJlblt ~ • II not poSI1lIe 10Invest dIrIc:IIr In·an ••. AFt. or II ..,&maWaina the SIP Csse. indices an4 •••• the IndIIIIMIs andpeffocn\IncelhQwn 01•••••••• IMdaII.noIlIIIIIIgt ectuaI assets. Index rwlums. dOnot hIIecl,.,.....,td ." ••• c:Nrges c•••• an invfstormay par 10~!IIe sec;uril!tI ~ Ihe 1ndu or••••.•• ~thIl~lIIIiIIftdId" Iral$Iht pwformanc»'oflht Inda n. impoSIIIon of ••••. ,... ,. and chargesWClllld cause aduaI and bIck-llSttcl peffaniliIaof Ihe ~ tobe.1IIft \III IndaI perfarllaa~ ~ aslinptl •••• " 1ft "* reuned1oe1.on a US $100,OCOln'le*nentfora12.ft1C1n1hperlad (orUl $10.0(0) and anaclll;l •••••••••• _of1A •••••••• atlheeBIollhel*laO.theinYlSlrNfltp!us ICCMMf •Interest (crUS S1.85O),Ihe"et rWn wouIcIbe a,:Wx. (01\1$ $1.350) lot.,. year. Over. """ yeltpertod,an aM1a11,s,. _tllllI\at yea,IfIdWilltan asNnId 10", reIum 1* •year WouldmuIt In a~. glOlllllUnlof33.1~ ._ fee of US $5,375. and. ~ netreun ot21.2%(orUS $27.200). .
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GENERAL DISCLAIMER
o AsIa lndt~ PItvN lina.d 2014. /II rIgIIIs ntSINed. Tbe S&P SSE Indic •• (lhe "IndIceI") are puI:Ished '" AsIa Index Private limited ("AlP\;." -'IIch III Jointvenl\n emcqamatesol saP CowJonlS indices LLCcsPOJl') and SSEUnited ('8SE1. Standerd 1,... •• ItIIJS&Narel'l9ist1ted InIdtmarlls oISta/1da1dlPotls FlnarIcIaI StMcteLLC ("S&P')and Cow Jonest" I regIItftd lnIdemaric 01Cow.kINI Tradematk ~I LLC roo- JonW). 8S9111d SSlSEX~ •• reglstenld lrademarks of BSE. lheIItredemarh ha'le been IIc:ensed to AIPl..
RCIdIeIribut!on. "'Pft'CItJcIIO dor photccopy1ng In whole or 1ftpact are piOhlbitad without written pennlssion. ThIa docIIIIenl does not canslitUle all offer of 5elY1ces In)ul'lldldlollt where.llPl. asc. S&P DIM JOfIeI~el LLC «tIelr ~ .nates (tcUedivaly 'AlP!. Campaniu1 do not""'e!he neteIUIJ 1Ir:enMs.AU.WoimaIionprovided by AlA. Companies Is impersonal and not 1a110red III 'It needs 01 any person. entity or group 01 persons. AlP\. Companies receive c:ompluullall in connedlon •••licensing b indica to IItirdpaItles. PiI$\ pelfonnaoce 01 an In<* Is not. guarantee 01Mureresults.
It Is not possible to \mat dlredIy.1n an lndell. Exposure to an asset dass represented by an Index Is avalallle Ihtough investable lnstnJmllnis basI6 on IIIat Index. Alp\'. Companies do nat spQIISOI'.endorw ••••• pramote or manage any ilNeslment fIIncIor oIher inveslmellt vthIdt ilia! is of!ered by Ihird parties and hit •• to pnMde 1ft'Investment retum based on 1111pedonnance 01 any Index. AlP\. Ccmpa1ies malte 1\0assurance lIIat iIwe*nent p!OducIs based on till Inde~ wlllCil:ldlely track IndelC.pet10mulIlClor pIOYld, posiU'Ie!rwesbnlnt MImI. AIPt. ••• S&P CoIf Jones indices llC ate not iIwesImIrIt acMsors. and lIIe AIPl COmpaniesmakl no represenlallonregarding tI, ~ 01 investing In any sudl1nveslmelt bid 01 oller Inve$lment vehicle. A decision to lIMIt In .., MICbInvesIment fund orolhet InYeIItment vthIcIeIhouId no! be made In IIIIIance on any 0I1he slatemenll set IoIth 1ft,*dccIinri PIospe<:tIve inveslcn are ~ IDiIIIkI an Inveslmtnt In., MICbfund or olhwvehlc:leot'I\J ., CMYr cansIder'~IQ ilia risks IIIOCiIttd withInvtsIng 11\••••••• cIeIaIed In an oIfecq mtmaraIldum « sImIar doc::ument1IIa!.1IJftpared.by or on behIIf 01Ihe __ 011111ilwesfmeftfund orolhotvehlc:ht.1ncIusIon 01a.seadJwiIh/n an ••• is not a rec:ommendallon by!heAlPl Comp:IrietIo bur ••••• «hold such security. norIII considered 10be InvtIItmenI~ CIoI/rig prices lor saP BSEIndIces •• ~ '" AlPl Ollis agent b~ on tile dosing price cI\III nMIuII conatituents oIlheIndta. ai lit by \tIeIr pmwy uchq •• CIosIrt pric8s aNIreceived byI4Pl or as avert _ one rlblNld PIIt1 \/et'.dors and IIerII\ed '" <:OIlIPIIfnIlII!IInwllh'Pl'fcet _ an ._emaIIvevendOr.ThevendcnrtcM\IIIcIoIintptle&fIomlle •••••• udlanget.RuI-IIme In\JadIr ""a'I calelJate4~ WiItIoItaS4icQlld ~ J
. Thes.1Mt1lfals haolebeenprepMd _101 WonnatIaIllllpwpoaesbestd .;n Wofma\!oIIgeneraIr •••• to \lie public: Ircm~ WMd)O '- reliable. NoCIIIWtCOnbllned in thesemallrlab(lnclucllngIndadata.·rallngs.QtdI ..••••• analystSandclata.modeI.soItwn or oItIw.appbIIoIt or OutpUt lhetehm) 011111part I\ereOf(CcntenI) rr.ilt be IMCIIed. mllSHnglnMred. lIprOC!ui:..s«cMbIIId In an, form by "" means. or sb'Id 1ft. databaMor MIMI· JYIIem, wiItIcU Olepctorwrtl.tlnpecrnbeion 01AlP\.. 1111COnteI'( WI nalbe.,...a for fIII'IJ ~ ~ JIUI1IOhS. ""PI.. and ••. fIIId.party .••• JIfVfIdM ItIIJIlceftecn _lie olhw Alp\'ColnpanIIs(~ 'AlP\. PaItI •• , donotgunnt •• ", 1CC:InCf.~ lfI'neIinut 01....., filii ~ Tbe AlP\. Pillet •• not nsponsibIe for"."emn 01omIMIons. "9ard1eu of !he cause.b!he mUb GbIiIMd ••• "'· ••• crt 1111Content. THe CONTENT ISPR<MOEOOM .-N 'AS IS' ~ 111EAIPL PAAT\!SDlSCI.AIM NfV ANOAU. exPRESS OR IMPliED WARlWmES.IICI.UDIHG. BUTNOT UMtTEO TO.NfV w,wwmes CI hlERCHANTA8IU1'Y OR FITNESS FORAPAR"C'lCUI.:AA P\lAPOSE ORUSE. 1ftnolVlfCsIIaII tneAlPt.PlltlllIllIIabIt10"" PIIt7 fat 1IIrJdlrlct.1riMd. ~ eaemp\IrJ. c:ompII"*,,, punI1Ift. specIaI.(JIcol'lSeq\lelllW -.. COSIS.tltpenstI.lepI fees. or !ossa (IncIIdIg. wbut 1mIaIIon. lost Income or ••••• and oppocUIIly COlIs) In connec:tIoft'""'" use'" theContent 8'/10 if IiIIIvIRdof I.IItpossillllr fl_ damages.
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THANK YOU
\,\. .S&P,L' 3SE--·
INDICES
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Mahavir KaswaSenior Manager, Product Management
+91 22 2272 [email protected]
KoerGhosh
Head - Buslness .o.velopment. South Asia
.+91 22 2272 521'[email protected]
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••.~,'. '/" .. ' ".,... ,\ ..• "" ''\\'''' .•....... FotF"<ft~It""'''' NOItcrPullllcl)$r.t:o.::OII PROPRIETARVp~ lei~or disr.tu. 3fty eont.ftIlrClllllirs ~,..,..lIoe ••.••~'" s,!.P Dew Joftes Indicft,
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Equity lnvestments By
Employees,' Provident Fund Organization (EPFO)
Analysis ~nd Suggestions
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Report Submitted By
India Index Services & Products ue, (IISL),NSE Group Company;'c.~
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•Table of Contents·
Sr. No. Section Page
1 Introduction 3
2 .Equity investments - Maximise returns without 3compromising safety
3 Existing allocation to Ntfty 50 and Sensex ETF 1
4 Diversification to other ETFs - New index ideas 9
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1) Introduction(
The Employees' Provident Fund Organization (EPFO) started investing in the stockmarket through the exchange-traded 'fund (ETF) route since August 2015. EPFOdecided to take an exposure of up to 5% of the incremental. investments through ETFs.The Organisation has been investing in two schemes of 581Mutual Fund - 58' NiftyelF and 58' Sensex ETF. .
Further tt) our presentation on -Equity. investment - Pension Fund. Perspective" inFIAC meeting held on January 18, 2016 please find our views on, asset allocationwhich EPFO should follow, diversificatio.n in equity investments thought investmentsin other equity ETFs based on factor based Indices, and Nifty 50 index profile.
2) Equity investments - Maximise returns without compromising'safety
Why invest in Eguity1
It has been observed internationally that as the economy improves the interest ratedeclines which results in lower returns from the fixed income investments. Diversifyingthe investments through investments in equity markets, which is not affected by suchmovements; will help to mitigate such risk. India is a growing economy and similartrend of declining interest rate scenario is a possibility in future. It is always observedthat the equity investment provides better returns in the long term and are consideredas a good inflation-hedge.
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The downward trend in the interest rate scenario as observed during the growth phaseof developed economies is depicted in the chart below.
Fi ure 1: Trend in interest rates of develo ed economies15.00%13.00%11.00%9.00%7.00%5.00%3.00%1.00%
-10 YearUSBond --·· ..10YearUKBond
2.57%" "2.54"
-1.00% 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Globally the pens10n funds in some of the largest developed markets like -.Australia.Canada, Japan, Netherland. Switzerland, UK & US have about 42% of assetsallocated in equity markets 1 .
I Source: Report bV Tower Watson - Global Pef'sion Funds Survey 201S
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Are Equity Investments safe? .
The equity investments are perceived to be volatile in the short term but usually yieldsrelatively higher returns and are less volatile In long term. From July 2004 to De¢ember2015. Nifty 50 Total Return index (Nifty 50 TR)' has given average daily 5 years rollingreturns of 17.4% with median returns being 14.1%. Based on the daily 5 year rollingreturns. Nifty 50 TR index has gIven negative returns only twice during the aboveperiod with minimum returns being only -0.04%.
Table No. 1: Niftv 50 dailv 5 vears rollina returns (Since Julv 2004)Parameters Returns (%)
Average 17.4%Median 14.1%Maximum 47.2%Minimum .-0.04%No of Instances with negative retu~n.. 2
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Based on the daily 5 years rolling return!; and Calendar year returns data, it can dededuced that Nifty 50 TR index is a safe equity benchmark for long term investments .with very low downside risk and short term volatility does not impact long termInvestors as observed in the past including 2008 financial crisis. If we take the 10(ten);year dany average.rolting return then the returns will be even more stable.
• •Should short term movements be a concern for long term investors?
The calendar year r~turns of Nifty 50 TR Index have varied over the years. but it hasbeen observed that period of low periormancehas been followed by period of growthor recovery. For example during the global financial crisis of 2008 Nifty 50 TR indexdeclined by 51% but immediately inlbe next calendar year 2009. itroseby +78%.
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Assessment of existing allocation of 5% incremental investm@nt in equity ElF
As per a notification dated April 23, 2015. EPFO can invest minimum 5% and upto'15% of its incremental lnvestments in equities. In order to assess if the 5% equity ElFinvestment may have any major impact on the overall portfolio in' the long term. thefollowing investroent projections have been described below.
Based on above investment guidelines, projections of EPFO equity investment overnext 10 years is as under. It is assumed that incremental investments in FY 2015-2016is Rs.1,1 0,000 crores with increase of 10% every year. Of this 5% is invested in equitymarket at start of every year. A modest rate of 7% is assumed for interest on debtinvestment.
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•Table 2: Projections: Equity investment 5%. Debt Investment 95%
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I 2017-18 i 1.33,100 i 6,655: 1,26,445 i 3,45,895 I 24,213r'-'" "--_ ••...""+---"",_.-_ ....•".,,,,. "t .. ··"_·"..· .."" .... ·,-,,...""--"t,,·,,·· ..- .._·_-'-" ,-. ".--...._.,,"'.. "...."t· ----"..-""----""-,,
L 20.~~:!~ L__,,_~.,46,4 ~,~-,t- ,_. ,.!,_~~~,'.,',_.__l... "._~,~~~O~'..' • __~,_~~!985 ~ 3~~_~49_.! 2019-~O i 1.61,051' 8,053 i 1.52,~98 l' 6,37,983' 44.,659:" .."~.-.-. ·""-r· .... --'---------·'''t''''''··'''''·..''''-----.."'.".'''','' .,,~--"'.'''. :----"""'•..,.". ,-" 'r" ,,,,.,,,,,,,--,._. ,,-! 2020-21 ; 1.77,156 I 8,858 : 1,68.298 ; 8.06,281 i 56,440j''''''' ."'''''".,+--,,,.,,-,----'''--''' ."'''''''--t-----''''--.~--'.....--. t"". - •.• "-· __ ·_-_·",·· ..t·..,,-·..···_-"'..,"-·,,"...,.~., .-"---.-.,--...l_,,~921-.?~L,~.~1~?~ J..--"--~'.!~~_-."',,L .,~'.~s.~:_~~. l__~~~,,~,410 _~ 69.~~~. '\ .2022-23.! . 2,14,359; 10,718 12,03,641 .; ...11.95,051 .. : 83,654
[J~~}rl~~.-f=}H~~=~£-~~~t~-F~j~~~:t1. l~f~~~...\ ,Totallncrt/emental * \1 87,656 I! '16,65,461 I I, 5.43,590
nvestmen Interest, , It-'·..--·~··--.· ..·-·-····:·~·· ..•,·"·· :·- ...•.-~ ,..-"- - ,, t.-. -.-".---~ ,"":--.- .- _- ,..+-- ,,-- - , --.._ -_ _-".oN' •• ..;. ••• .-.-- .•••• -.---- •••• - ..• - ••••. -.--.--1-- ..-- -- - -""._.- _ .., - -, I I ' Ii% of Total Full Mcap at NSE \ 0.9% \ ' i ' iI· , _-- _..... ...,- ...............•...,. 't..·,-_..,-,,,,,-- - --.."1'-.. -- .. _-.._ _ _., " -r- " --- ..l~s~Total Free float Mcap at 1 2.0% i \:_..__..___---'___,:_,..' _;.. """ J _ _ J.__'_.., _, ",,,,,..__j , ,......J,..',",......', '__ ,•All Figures are in Rs. Crs.
Observations:
. 1. It is observed that the interesteamed on debt investment is much higher than thecapital invested In equity market '
,2. The interest earned is 6 times ~f equity investment and the size of equity holdingwill be less than 3.5% of the total portfolio size
3. The equity investment at end of 2024-25 would account for only 2% ofthe currentfree float market capitalisation of NSE
4. As on November 30.2015 foreign pension funds have invested Rs.1, 14,504 croresin the lndian equity market
5. In view of the above. there does not appear to be any major likely impact on theoverall portfolio given the projected moderate size of EPFO's equity portfoliO
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Summary:
The ./ong term equity investment appears to be the approach fol/owed' even by theglobal. pension funds to earn relatively higher retums on their portfolio. In our view,.EPFO should continue to invest at regular intervals in equity markets to minimize theimpact of short-term volatility. For the initial years. EPFO may continue to invest 5%of incremental accretions in equity. Based on expenence gained in equity markets,accounting and management, EPFO may increase the equity investment to 15% overnext 5 years.
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•3) Existing allocation to Nifty 50 ETF and Sensex ETF
As per a notification dated April 23, 2015, EPFO canlnvest in following equity andequity related instruments. Presently EPFO is investing in equity through ETFs on Nifty50 and Sensex issued by,~al Mutual Fund. "~" ~
The comparison of Nifty 50 and Sensex on various relevant investment parametersare given below.
T bl 3 M k &a e ar et coveraae acceotance
As on Dec 31,Nifty 50 ETF , Sensex ETF
2015 No. of AUM Market Share No. of AUM Market ShareETFs (Rs. Crs) inAUM ETFs (Rs. Crs) inAUM
Domestic .ETFs 13 5,055 79% 7 1.324 21%International
6 7.128 91% 1 706 9%ETFs :
Total AUM 19 12.183 86% 8 2,030 14% .
Table 4' Diversification & returns
Parameters Nifty 50 Sensex
No of stocks , 50 .30
No of sector representation 13 11
Index free-float market capitalization as %of NSE's64% 53%free-float market capitalization
5 Year CAGR returns (as on December 31, 2015) 5.3% 5.0% .
Table 5' Liauidl~ oarameters.Parameter NSE aSEAvg. Dally Turnover (Rs. Crs) 16.862 2,953Market Share 85% 15%6 months average turnover for period ending on December 2015
Table 6' Eguity Derivatives - Domestic Market
.No, of Turnover OpenMarket Market Market
Exchange Share- (# Share- Share -Contracts (Rs Crs) Interest
Contracts) Turnover 01NSE 1,668,08~.500 41,812.156 3~279.662 94% 91% 100%aSE 97,275,475 4,026,784 5,229 6% 9% 0%
--For penod Apr 2015 - Nov 2015 (Source: SEBI Bulletin)
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Observations:1. In India, there are 12 ETFs based.on Nifty 50 index which is the maximum on any
single index. 2. Global asset management companies have launched 6 ETFs on Nifty 50 index3. Nifty;'50 index has 50 stocks, whicH represents 13 sectors. representing about 66%
of the free float market capitalization of the stocks listed on NSE4. Nifty 50 Index is constructed using a robust methodology which aims to identify
and track the largest and most liquid stocks listed on NSE. ~orthis impact cost ofstock is considered before including a stock in the index
5. For a stock to qualify for ·possibleinclusion into the Nifty 50, it should have tradedat an average impact cost of 0.50% or less during the last six months for 90% ofthe observations. for the basket size ofRs. 2 crores
6. In India, majority of equity and derivatives transactions are.transacted on NationalStock Exchange. The market share ofNSE in equity and equity derivative segmentturnover in India is around 85% and 87% respectively in FY 2015-16
7. One of the important stock selection criteria for Nifty 50 Index is the liquidity of thesecurities (measured as impact cost) traded on NSE. Therefore higher liquidity onNSE ensures that relatively more liquid securities will form part of the Nifty indices
8. Nifty 50 is among the top traded derivatives contract globally. This facilitatesinvestors to hedge the equity portfolio
9. Nifty 50 index maintenance follows a ·two-tiered governance structure for indexmaintenance. The index methodology·is a transparent, rule driven methodologybased on objective criteria
".Summary:Allocation to Broad based indices - The EPFO's approach of starting the equity'investment through broad based Indices appears to be sound investment decision.The higher al/ocation to the broad based Indices may be continued in the initial ff)wyears.
Apart from the returns, few other factors to be considered for deciding the allocationto broad based index as underlying for ETF investment are given below.
• Portfolio diversification - Number of stocks in the index and sectors covered• . Market capitalization representation. provided by the index• Market coverage, index govemance & robust methodology• Number bf ETFs benchmarked and Asset under managemental those ETFs
As described ;n the above sectioos, Nifty 50 index scores well on a/I these parameterswhen comp~red to Sensex. As Nifty 50 represents 65% of free float marketcapitalization of NSE, it provides a diversified exposure of Indian equity m~rkets. Nifty5.0 index is developed considering the turnove; data at NSE which is higher liquidityand accounts for 85%ofinarket share. The liquidity on NSE offers lower transactioncost for buying and selling constituents of Nifty 50. In our view EPFO sho,!ld.continueits existing investment pattern in ETF based on Nifty 50 index:
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4) Diversification to other ETFs - New index ideas
Investment by EPFO 'c~nbe benchmarked on indices which consist of stocks chosenbased on parameters like;...... ,
1) Company shouldhave stable earnings and low Oebt or Gearing2) Stock price of the company should be less volatile3) Company should have ~ sustained dividend payment profile4) It should not have reported losses in the last three years and should have a
positive net worth.5) Should have F&O available on the security (indicates higher liquidity)6) Minimum Market Capitalization of Rs. 5000 crores
Factor based indices can be developed for EPFO which will include the good stocksmeeting the above mentioned criteria. The expected benefits of investment based onSUchindices are
1) lower volatility of the portfolio and hence less risk,2) Higher Dividend outflow resulting in sustained income3) Matching of Returns and Risk profile of the portfolio with the investment profile
of EPFO
Smart beta (factor) indices for EPFO:
IISL has constructed Low volatility, Quality and Size factor based 30 stock Indices forEPFO. Initial stock universe for these indices were chosen based on "the Ministry oflabour. and Employment guid~ines where stock with market capitalization greaterthan Rs. 5,000 crares and having F&O on it ts eligible. These Indices are based onthe factors mentioned below
1) low Volatility Index: Stocks are selected on the basis of low volatility profile."., Stocks with lower volatility get higherweightage in the index.2) Quality Index: Stocks are selected on the aggregate, Quality score based on
High Return on Equity, low Debt-to-equity ratio and High Change in PAT overa period of three years. Stocks with high quality score get higher weightage inthe Index.
3) Size Index: Stocks are selected on the basis of its Market Capitalization (similarto broad based indices). Stocks with higher free float Mcap gets higherweightage.
The indices were constructed with CNer 10 year history and periodic rebalancing ofconstituents. Based on the Return and Risk profile. it is. observed that quality andv<;>latilityf;actor based index has outperformed Nifty 50 by providing better returns withlower volatility throughout hiStory.
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W~ights basedWeights based Weights based on' on Qualityon Volatility free float Score
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17.3% 11.7% 14.7%
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Summary:
Going ahead EPFO may consider investing in 'ETFs ,based on other broad basedindices, strategy indices and thematic indices. However, we .would advise to refrainfrom sector based ErRs at this stage. Globally, alternative weighting methods of indexconstituents have emerged where weights of Index constituents are based on factorslike low volatility, .quality. These indices may also be explored. Some of these Indiceshave already been developed for investment evaluation by EPFO.
IISL already maintains several thematic and factor based strategy indices for Indianequity markets. /IISL has the required expertise and capacity to support in theinnovative index development using robust back testing framework, which can help inefficient asset al/ocation of EPFO portfolio.
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•Dear Sir.
Following i~ the summary of our suggestions as discussed during the FIAC meeting held on January 18.2016:
~ Allocation to equity investments:
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• Based on historical returns, equity is one of the best performing asset class over longer investmenthorizons and also, the risk of loss decreases with increase in investment horizon. For Instance, S&P BSESensex indexhas given average 15% annual return since inception (1979). Also, S&P SSE Sensex indexhas not given negative return In anY 15 year period since inception and 93% of times returns are morethan 10%. Globally, 30% is the average allocation to equity by pension fundS. With 15% incrementalallocation to equity, overall allocation to equity, in EPFO, will reach 30% by 2060 (in line with globalaverage). Hence there is a need for higher allocation of 15% to equity.
• Other models for allocating funds to equity include options like leaving the choice of equity allocationto the investor or the life cycle option which adjusts the equity allocation based on the age of investor.
Diversification of equity investm~nts:
• Direct equity (through selection of portfolio manager/managers): It has advantages like scope ofalpha generation through active fund management and lower cost of fund management. But. this optionrequires infrastructure and dedicated investment & research and risk management teams. EPFO can lookat appointing dedicated portfolio managers in case a decision is taken to make direct equity investments .
• Units of equity mutual funds: It has advantages like scope of alpha generation through active fund. management, expense charged to net asset valUe of scheme and ease of investment at day end netasset value. But, this option has drawbacks like higher fund management cost. potential adverse impacton performance due to irregular innows and redemptiOn pressure in MF from existing investors.
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• Exchange traded funds 'Index funds (SenseXINifty): Expertise of equity market lsnctrequired asfund is managed passively. It has drawbacks like returns being close to underlying index with no potentialto generate alpha and compulsory exposure to sectors or stocks with negative outlook .
Regards,
Vikram ShastryManagerFunds & Fixed Income ResearchCRISIL ResearchCRISI\,. House. Plot no. 46, Se<:lor-44. Opposite PF Office Gurgaon-122003(0) +91 12467224331 (M) -1"91 9650067294 1(6) *91 1246722000 !www.crisil.com
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A 1\N',-pf.~v(5:- F'~- ",;). ~f' S~bject: Re: Presentation on Equity Investment by EPFO In FIAC meeting
I held on 1810112016.• J To: ajay kumar <epfoajay@gmailcom>." MMuxesh Agarwal (OIlSL)" <mukesha@nse,co.in>,lJ Navneet Munot <navneet,[email protected]>.
"GhllSh, Koer <[email protected]>,Koel Ghosh <[email protected]>
Cc: FA CAO <[email protected]>,·[email protected] .in- '<[email protected]>,-RPFC, Investment. EPFO ~
, FA & C,\O Secra "RaGe\vad on
,.. ~)• 6-c..~~'> Dlary No. 1S \«3.• ~ Dear Shri Ajay Kumarji; "Z\·,qG
Referring to the discussions held in the EPFO in FlAC meeting held on 18-01-16. whilethanking you all for giving me an opportunity to put forth my pOint of views and I wasextremely happy to share the strategies and concepts of learned and proficient otherrn embers. I would like to forward the following suggestions for inClusion in the Action
: " Points. I even would like to put before you few of my personal opinions, which i hope can~.~econsidered for achieving the objective of safety investments with desirable growth and:' ~.•.•..eturns:" "&,N!:. Detailed guidelines for safe lnvestrnentdeclslons with objectives are to be formulated for: monitoring.review and continuance of the investments made. .: (~ The present SIP investment system has to be improved by following the support and: .~ resistance levels for each trading session.: '" . As Nifty ISensex provides only limited opportunities and some of the companies in these: e.. ~. indice.s have had sUffered..downgradation due t.oenvironm.ental changes.The scrips that:.. are to be selected for investment shouldbe the best quality Scrips.The parameters: ". .I.\~\L apparently for the best scrips are ":. lil\ '!- =Thescrip shoul~ enjoy the AAA rati':l9of CRISIL to ensure the safety of ~nds-IMPO.RTANT
', ~.~~~ After CRISIL rating adequacy, scrubBYof debt exposure of the company IS to be verified .• " \ ' j-ower debt\Zero debt companies aremore safe havens of investments. .
,~ is also to be verified about the proJiability,and the dividend paying record of the• ~ry companies is to be evaluated before investments.'cf Preference should be given to sectOISlike IT ,FMGC ,PHARMA for investments in the
,• ~ down market trends. '. • ~o/:I:- 'PSU Navratna and mini PSU Navram companies should be considered for investment as-e theyare categorised for their perforraance and transparent governance. .· '••. : ••
.nvestmen
From: RamakQteswara Amara <[email protected]'Reply·"io: Ramakoteswar8 Amara <[email protected]'
Date: 24101/1610:32 PM
-
Companies where high pledge of pmmoter shares were done by the promoters are to beavoided as a thumb rule in investmeads.
Negative sector companies which au not eligible for further limits and identified, by RB,Iand other agencies are to be avoided, '
••Dialogue with the disinvestment c01lPanies might help to make a calendar for periodicalinvestments of safe returns.•
• The utmost important thing in theiraestments is, the CRISlLranking of the Mutual Fund• that is employed for the investmenttask,management is to be taken into consideration. Thl'~
J =--__ --'\:!•.•.•.n.•.•.sures.the safety and·prudeDceof the decisions of investments of the fUl:ld.• f\',. I r ';;fJ /1 r;{~ ,•. :' ' ," '" ,,:-~l,~,.b'
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~ "~I\ understandin.j and sharing of investment strategies with funds like LlC\GiC mid"t helpJ 'nselecting and rejecting the companies for investments.
'he need of the hour at this juncture is a dedicated,qualified and trained team ofprofessionals to maintain the equity portfolios.An audit system to review periodically the portfolio management is to be established.A system to evaluate the performance of the fund managers is a must to safe guard theinvestme.nts.
I hopeyou will appreciate my suggestions and i look forward td your reply on the same>With regards. . .A. Ramakoteswara rao.
From: ajay kumar <[email protected]>To: Mukesh Agarwal (OllSL) <[email protected]>; Navneet Munot <[email protected]>; -Ghosh,Koel" <[email protected]>; Koel Ghosh <[email protected]>; Ramkoteshwar Rao< [email protected]>Cc: FA CAO <[email protected]>; [email protected]; "RPFC, Investment,EPFO,Head office. NewDelhi" <[email protected]>Sent: Friday, 22 January 2016 1:4'7 PMSubject Presentation on Equity investment by EPFO in FIAC meeting held on 18101/2016.t .Dear All, , " ,,'. .May kindly refer to the discussion on the subject he'd in the FIAC meeting held on 18/01/2016 at EPFO HeadOffice. •
Based on the discussion it was decided that the experts may give their suggestion on the tcind'of asset allocationEPFO should be ldeany having in order to maximize the return on the entire portfolio without compromising thesafety and security or the assets •.Suggestio~ were also~t with regard to having ErFs other than Serisexa nd NIFTY based ETFs for dlverslficatiooin Investment IneqUIty and related Investments.
You are accordingly requested to forward your valuable suggestions preferably within 10 days•
Regards
Ajay KumarRegional P.F. Commissioner II,Investment Monitoring Cell, HQ,Employees Provident Fund Organisation, GOI14, Shikaji Cama Place, New Delhi,Ph. 011-26180045
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'Key'messages .~I"
o New pattern expands Investment universe; also mandates equities ",
• EPFO's outstanding corpus primarily Invested In fixed Income
- High inflation caps real returns
o EPFO has commenced Investing 5% .of Incremental nowsin elF.
'- Recent market fal has led to -3,88% returna
o Over long term. equity Investments augur well for EPFO
'0 Case for higher allocation. evaluation 01 newer avenue. in equity
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tv) Asset Backed, TN$t Structured and Mlsce\lanaous Investments - A8S, NIBS, 0 _ 5eMSS, REIT!, InVITS_...-,
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• EPFO'. investmen~ are primarily In debt instrumen~- Since 1990, average' retail inflation has been 7,25%, resulting'in'real return of 3%- Real return$ were, In fact, negative during high-inllation periods
IPf'O..ac1arM In'e,est ,a'e ftfSUII cPllnnation rate
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• Key drivers Includa:Budget. government borrowing plan, RBI monetary policy. supply of UOAY and tax freebonds, Bank NPAs, FPI investments and US Federal Reserve rate action
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• New Investment pattern penn its 5% to 15'''' of Incremental accretions to beInvested In equities and related Instruments
• EPFO has decided to invest 5'/. of accretions In equiUes. ,
. - Investments are made through Exchange Traded Funds (ETF) that track Nifty 50 andS&P BSE SENSE)( indl~s in the ratio of 75:'25
- SBI MF is sole ETF manufacturer for EPFO- Investments In ETFs are spread across 15 days from the start of fresh accretions, which
Is typicalty 15" of every month .- Funds are temporarily parked in !Jquid Funds,· before investments are made·
• Since August 5, 2015, EPFOhas Invested Rs. 4,918 crores In equity
• Market value of equity Invesbnents as on January 31, 2016 is Rs. 4,727crores, amounting to absolute return of - 3.88%- Over the same period. Nifty 50 and S&P BSE SENSEXhave given absolute returns of •
11.48% and -11.59%-EPFO'sloss has been lower because of investing at different points of time
Equity performance trend .~l"
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and FY 2001 (.27.93%)
• Sensex has not given negative Naturn in any 15 year period- 93% of times returns are more'than 1()O~
• •• Sansex has generated 10% plus returns 4 out of 5 times In 10 year •
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• One of the fastest growing economies with increasing dlscretionaey spending
• Vibrant d~estie demand: 59% of GDP i. dependent on domestic economy
• Over 50% Of India's population Is aged below 25 - a large number In a high-spending age group
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Volatility reduces over longer investment horizons oCRISt!...AESiAACli .
• Equity (S&P SSE Sensex) has given average 15°!. return sincelnceptlonA
- The risk of loss decreases as the investment horizon inoreases. as seen below
High Volatility of Equity decreases over long term
Volatility .
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Way forward· discussed during FIAC meeting
• Over long term, move to 15% or even hlghet allocation to equity
• As per current Invesbnent allocation, equity as percentage .f overall. ~PFOcorpus will reach 5% only In 20 years .
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• Minimal Impact of equity on overall potential return with 5-15% exposl,Jre,
• Globally. average 300/. Is the allocation to equity by pension funds
• Other models for allocating funds to equity- Life cycle option. basad on ageof investor-Choice of allOQltion to equity left to investor
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Way forward· discussed during FIAC meeting (4/4)
• Given current market scenario, continue or Increase allocation to equity?- Stoppage 0; investments reduces efficacy of equity investments- Ideally Investments In equity should be increaSed for every sharp fall to benefit most in
long term- COl'1tinulng same level of equity investments altO has its benefits
DOuble in\l•• tments .. 12.803.42 12.88%
• Alternate Index strategies such as Dividend yield, Active beta' and Lowvolatility can also be .valuated
• CRiSil.r..RESEARCH
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• •••equities help spruce up returns significantly- Average real return of select OECO countries was 3.9% in the.flve years to 2014,
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9
Asset Allocation Of Pension Funds: Non· OECDCountries
Top 15 countries based on asset undll' mJU'l911'11ent- PeMiOn lunda IIMIII on an __ age more lhan 5O'lIo irI aSHIs gIMr Ihan tIcII*
24'" isllle _. aIIOCaIiDn10equity by Top 15 PFsln nanoaeco counIriftRIIkappetite 01rtleYanI ~sQO'l_ •••• liIy in inv~
"OIhtI"""'-'I_"Io __ •••••••••.••••••••••••__ .hedge"",pm,ooeoqulty"...*-ed~._'_~O, •.noI_ ••••••••__ -. ••.oquiIIftI .
Sensitivity to equity declines
• In cas. FY 1993 (-4$.78%) Isrepeate<ilnthetermlnat V•• f, equity portfolioreturn will be: . . .
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,:", .EPFO's .investment in EquityETF'sTHE LONG ROAD FORWARD
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. PASSIVE INVESTING STRATEGIESS&P.?3SE
IHOIC£S
• Indices are designed to capture different segments of the market - by size, sector, orfactor and asset class.
• Diversification is always a key investment stratBgy for long term investments• DiversifICation has to be along asset c:Jass. size, sector and factor to reap the full
be~lits• . No single siafsgy' can provide consistent positive returns over all periods• Olvetsitication ensures hedging. of ldiosynaatic. single stock risks and the benefits of
exposure to different segments• In the foIoMllg slides we will ~ !he risk relUm profiles of different segments
using ~ SIP. SSE indices
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S&P4>35EINOICES
, WHY DO BROAD BENCHMARKS WORK?
.• In the WOtd$ of the late 13enjamil Graham. a founding father of I1IOd6m secutilyanalysis*. when Intetvlewed by theFinancial Analysts Journal in 197~ ...
FAJ: "'Can the avtIllg8l111111ge1 of ~1iIuilnII bids obIain betIer lISuils _ hi Cow JonesIIldustrial Average or III Slandald &Poo(s IndexMIllie years?"
BG: -No. In ellect.fllatwould ,.. bIllIIIlIDCk n)IItetexpeRJ _ awllole coukf beat ~- • logical t:IOftIIadi:fio.
• According to the. of PtoIe8«Ji WiIfiamF.. ShliIPI. Nobel Lauteale (1990) ••.>AI inves1DlS coIectivett CIWIIIb •• nfire Ib:k" .>8ydelinijorl, passive iRveIIGII.- atfOl4J,owD • .-a of •••• tiIatiet.>,TtlerefOledveilveslGfl •• lgrQUp.mualilloow ••• l8pIc:aoflll •••• fIlIUket.• Buta.maMQ8III8Ill~"'''''''''''''''~• TtIeIefcQ;"PJOP8I¥••••.•• avetap ••• ......,dallarmusl undeIpedDrmlle
IVtIlIg8 passi;eIy IIIII\IIIIed ~ lief of COlIs.• - WiIiam f. SI!IIpe. "'PIe AriItImeJic of ActiveManagemeIII.' FinandMAnMjsIsJoumal1991
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• EffICient access to the market factor. otherwise known asMmarket beta-
,. BIoid~ CtMlsaMt 1$thebasis Iorilldex ~ ~.. ~lUdIuETf' .
'J,. They ••••••• ~ it the f:IIPitaIRWielJ such u·equit/u.qt.#WKI income - ·MIblchQ the pnm.,y dtIBtminanI 01pottIoIiOreIun atidtid"
"They~ can'be~ IIleIaIiwIIylow coSt- so iJlI8.SIcw IhouIdlit••.p.y extra fDll7IIIIIbt cnrposuI'81 btoad index funds .,. aitaIabIe
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S&P(:.'3SE'NDICES
,.,.. 'WHAT VALUE DO STRATEGY INDICES DELIVER? WHY DO STRATEGY INDICES WORK?
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• ElfJCiellt access to non-market factors such as value,-mo~tum. quality, and low ,volatiUty
• In the infotmaIion age, true managBmfllll $IdIJhas become inaBasingIy rare due10the rapid di88emination 01malerici. madcet moving infonnatfon to ail marlce!
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• Uany ac:Iive managn reJynot upon true $IdIJ,but on non-mwket fadO/S todt/MlrrelumS to their investOit .
-----"--=====)0, 'Pm(JIJIIy CGIIIIIUt;tad ti/18tBW ildIt:II6 CIIIJMV8 as ,. basil for index
,tiscIting IinanciItI pIOdut:ts, -1UdI" E1Ff .,. ThlJf ~ $pIICifJt:.targfIsd 8XpOSUfBS and givs inVeskn COIII1OI0VBl
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• SlnltB9Y indices cano/len seNe as replilCBments for tu:ceSS to non-maricet (adorexposure. becauH fador-based exposure can frequently be captured in rules-based-kameWOift'oIlndIces
'. Th8refore, strategy indices may enhance the efficiency ofpottfoJio CiJllStructionand/mplemelltBlion
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INDICESTABLE OF CONTENTS
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TABLE OF CONTENTS WHAT IS SMART SETA?
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As investors look beyond classic tnaIkel beta i:Ir.factcn ChatinIIuenc:e rist'8nd return.many are inaea5inglyevatualillg altemalive$to markekap weightedmices.
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S&P SINGLE FACTOR OFFERINGS
S&Pvl35E!HDIC£S
ATEGY OBJECTIVES
Value creation . .• "tiaS,1tIe factor generaled poSitive historical reIums tMllbe long linn?-Is (.lum histoIy available for bad times?Ec~ lniuition . ,•.
'i' ': factor based upQB strong economic inluilon and academic evidence?• Is the Iheofy backed by $frong empirical evidence?
'. IONersilicatbn·• .Does IRe factor hM a hisIoric:aUy low c:orreIaIion wiIh core asset classes?• Does ,lie .factor have a hIsIoricaIIy low c:orreIaIion wilb oIher smart beta factots?
• 'Efficie"t~?Can 1hefaetMbeelicienltt capIuI1d in. transparent and rules based III8IlneI7
• CJft lie ••• be impJement!MIwilh·rusonabIit ttading cost and hlgb degree of capacily?
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• During mid to long tenn iIIdeXnoted ouIpeIfoImance to SIP BSf SENSEX willi big •• and.bIB ••••.
AccoRIingIy !he index notecfbelllrnu a41istedretums IIan S&PBSf SENSEX
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THe GAZeneE OF INDIA - eXTRAORDINARY [PART II - SEC. 3 (II)]
MINISTRY OF lJ)BOUR AND"i~PLOYMEN1NOTIFICATION "
New Delhi, the 23rct::,~p.ril,2015
S. O. 1071 (E). - In exercise of the powers conferred by sub-paragraph (1) of paragraph52 of the Employees' Provident Funds Scheme, 1952 and in supersession of the notification ofthe Government of India In the Ministry of labour No. 5.0. 34S0(E).- dated the 21st.Nov 2013the Central Government hereby directs that a'" Incremental aeerettens belongln8 to the Fundshalt be Invested In accordance with the followln8 pattern namely-
Category
(ii) Minimum35°/. andupto 45%
(i)
INVESTMENT PATTERN , PerceDtageamount tobe Invested
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Government Securities and Related Investments Minimum450/. andupto 500/.(a) Government Securities,
(b) Other Securities {'Securities' as defined in section 2(h) of theSecurities Contracts (Regulation) Act, 1956} the principal whereofand interest whereon is fully and unconditionally guaranteed 'bythe Central Government or any State Government.
The portfolio invested under this sub-category Of securities shallnot be in excess of 10% of the total portfolio of the fund.
(c) Units of Mutual Funds set up as dedicated funds for investmentin Govt. securities and regulated by the Securities and ExchangeBoard of India:
Provided that the portfolio invested in such mutual funds shall notbe more than S% of the total portfolio at any point of time andfresh investments made in them shall not exceed S% of the freshaccretions in the year.Debt Instruments and Related Investments .
(a) Listed (or proposed to be listed in case of fresh issue) debtsecurities issued by bodies corporate, including banks and publicfinancial institutions CPublic Financial Institutions' as' definedunder Section 2 of the Companies Act, ,20 (3). which have aminimum residual maturity period of three years from the date ofinvestment. .
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THE GAZETTEE Of INDIA - EXTRAORDINARY [PART 11- SEC. 3 U1}1
Category .... INVESTMENT PATrERN Percentageamount tobe invested
No investment in this sub-category in initial offerings shalt exceed20% of the initial offering. Further, at any. point of time, theaggregate value of Tier Ibonds of any particular bank held by thefund shall not exceed 20% of such .bonds issued by that-Bank.
(c) Rupee Bonds having an outstanding maturity of at least 3'"years issued .by institutions of the International Bank forReconstruction and Development, International FinanceCorporation and Asian Development Bank.
(d) Term Deposit receipts of not less than one year duration issuedby scheduled commercial banks, which .satisfy the followingconditions on the basis of published annual report(s) for the mostrecent years; as .requited to have been published bythem underlaw: . .
(i) having declared profit in the immediately preceding threefinancial years;
(ii) maintaining a minimum Capital to Risk Weighted AssetsRatio of 9%. or mandated by prevailing RBI norms. whichever ishigher;
(Hi) having net non-performing assets of not more tla.an4% of thenet advances;
(b) Basel III Tier-l bonds issued by scheduled commercial banksunder RBI Guidelines:
Provided that in case of initial offering of the bonds the investmentshall be made only in such Tier-I bonds which are proposed to belisted.
Provided further that investment shall be made in such bonds of ascheduled commercial bank from the secondary market only ifsuch Tier Ibonds are listed and regularly traded.
Total portfolio invested in this sub-category, at any time, shall notbe more than 2% of the total portfolio' of the fund. .
(iv) having a minimum net worth of not less than Rs.200 crores.
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Category INVESTMENT PATTERN Percentageamount tobe invested
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(e) 'Units of Debt Mutual Funds as regulated by Securities andExchange Board ofh\dia:
Provided that fresh investment in Debt Mutual Funds shall not bemore than 5% of the fresh accretions invested in the year and theportfolio invested in them shall not exceed S% of the totalportfolio of the fund at any point in time, .
(t) The following infrastructure related debt instruments:
(i) Listed (or proposed to be listed in case of fresh issue) debtsecurities issued by body corporates engaged mainly in thebusiness of development or operation and maintenance ofinfrastructure, or development, construction or finance of low costhousing. .
Further, this category shall also include securities issued by IndianRailways or any of the body corporates in which it' has majorityshareholding.
This category shall also include securities issued by any Authorityof the Government which 'is not a body corporate and has beenformed mainly with the purpose of promoting development ofinfrastructure.
It is further clarified that any structural obligation undertaken orletter of comfort issued by the Central Government, IndianRailways or any Authority of the Central Government, for anysecurity issued by a body corporate engaged in the business ofinfrastruc;turc, which notwithstanding the terms in thc letter ofcomfort or the obligation undertaken, fails to enable its inclusionas security covered under category (i) (b) above, shall be treated asan eligible security under this sukate80~ ..
(ii) Infrastructure and affordable housing Bonds issued by anyscheduled commercial bank. which meets the conditions specifiedin (ii)(d) above. '
• (Hi), Listed (or proposed to be listed in case of fresh issue)securities issued by Infrastructure debt funds operating as a Non-Banking Financial Company and regulated by Reserve Bank ofIndia.
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THE GAZmEE OF INOlA - EXTRAOR01NARY (PART 11- SEC. 3(JJU
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amount tobe invested
(iii)
Money market instruments:
(iv) Listed (or proposed to be listed in case of fresh issue) units.issued by Infrastructure Debt Funds operating as a Mutual Fundand regulated by Securities and Exchange Board of India.
It is clarified that, barring exceptions mentioned above, for thepurpose of this sub-category (0, a sector shan be treated as part ofinfrastructure as per Government of India's harmonized master-listof infrastructure sub-sectors. .
Provided that the investment undersub-categorics (a), (b) and (0(l) to (iv) of this category No. (ii)shall be made only in suchsecurities which have minimum AA rating or equivalent in theapplicable' rating scale. from at least two credit rating agenciesregistered with Securities and Exchange Board of India underSecurities and Exchange Board of India (Credit Rating Agency)Regulation, 1999. Provided further that in case of the sub-category(0 (iii) the ratings shall relate to the Non-Banking FinancialCompany and for the sub-category (0 (iv) the ratings shall relateto .the investment in eligible securities rated above investmentgrade of the scheme of the fund.
Provided further that if the. securities I entities have been rated bymore than two rating agencies, the two lowest of all the ratingsshall be considered.
Provided further that investments under this. category requiring aminimum AA rating, as specified ,above, shall 'be permissible insecurities having investment grade rating below AA incase therisk of default for such securities is fully covered with CreditDefault Swaps (COSs) issued under Guidelines of the ReserveBank of India and,purchased along with the underlying securities.Purchase amount' of such Swaps shall be considered to beinvestment made under this category. .
For sub-category (c), a single rating orAA or above by a: domesticor international rating agency will be acceptable.
It is clarified that debt securities covered under category (i) (b)above are excluded from this cateAory (ii);Short-term Debt Instruments bdRelated hivestments . UptoS% .
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THE GAZETIEE OF INOlA - EXTRAOROINARY (PART \1- SEC. 3 (II))
(iv)
(c) Exchange Traded J:unds (ETFs) I Index Funds reguJated by theSecurities and Exchange Board of India that replicate the portfolio
Category INVESTMENT PATTERN..'.
Percentageamount tobe invested
Provided that investment in commercial paper issued by body.corporates shall be made only in such instruments which have'minimum rating of Al+ by at least two credit rating agenciesregistered with the Securities and Exchange Board of India.
Provided further that if commercial paper has been rated by morethan two rating agencies. the two lowest of the ratings shall beconsidered .
Provided further that investment in this sub-category in lCertificates of Deposit of up to one year duration issued byscheduled commercial banks. will require the bank to satisfy allconditions mentioned in category (ii) (d) above.
(b) Units of liquid mutual funds regulated by the Securities andExchange Soard of India.
(c) Term Deposit Receipts of up to one year duration issued bysuch scheduled commercial banks which satisfy all conditionsmentioned in category (ii) (d) above.Equities and Related Investments Minimum
5% andShares -of body corporates listed on Bombay Stock .Exchange upto 15%(BSE) or National Stock Exchange (NSE), which have:
(i) Market capitalization of not less than Rs. 5000 crore ~ on thedate of investment; and
(il) Derivatives with the shares as underlying. traded in either ofthe two stock exchanges. . ,
(b) lilli~ of mutual, funds regulated by the Securities andExchange' 'Board of India, which have minimum 65% of theirinvestment in shares of body eorporates listed on 8SE or NSE.
Provided that the aggregate portfolio invested in such mutualfunds shall not be in excess of 5% of the total portfolio of the fundat any point in time and the fresh investment in such mutual fundsshall not be in excess of 5% of the fresh accretions invested in theyear.
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THE GAZETTEE OF INDIA - EXTRAORDINARY [PART" - sec. 3 om
Category INVESTMENT PATTERN Percentageamount tobe invested
(v)
Provided further that if the securities I entities have been rated bymore than two rating agencies. the two lowest 'of the ratings shall
of either BSE Sensex Index or NSE Nifty SO Index.
(d) ETFs issued by SEBI regulated Mutual Funds constructedspecifically for disinvestment of shareholdingof the Governmentof India in body corporates.
(e) Exchange traded derivatives regulated by the Securities andExchange Board of India having the underlying of any permissiblelisted stock or any of the permissible indices, with the sole purposeof hedging.
Provided that the portfolio invested in derivatives in terms ofcontract value shall not be in excess of 5% of the total portfolioinvested in sub-categories (a) to (d) above.
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Asset Backed, Trust Structured and Miscellaneous Upto 5°/.Investments
(a) Commercial mortgage based Securitiesmortgage based securities.
or Residential
(b) Units issued by Real Estate Investment Trusts regulated by theSecurities and Exchange Board of India.
(c) Asset Backed Securities regulated by the. Securities and. .Exchange Board of India.
(d) Units of Infrastructure Investment Trusts regulated by theSecurities and Exchange Board of India.
Provided that investment under this category No. (v)shall only bein listed instruments Or fresh issues that are proposed tQbe listed.
Provided further that investment under this category shall be madeonly in such securities which have minimum AA or equivalentrating in the applicable rating scale from at least two credit ratingagencies registered by the Securities and Exchange Board of Indiaunder. Securities and Exchange Board of .India (Credit RatingAgency) Regulations, 1999. Provided further that in case. of the. sub-categories (b) and (d) the ratings shall relate to the rating ofthe sponsor c!ntityfloating the trust.
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THE GAZETIEE OF INDIA - EXTRAORDINARY (PART 11- SEe. 3 (II))
Category INVESTMENT PATTERN!
Percentageamount to
i be investedbe considered. I
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2. Fresh accretions to the fund will be invested in the permissible c~egories specified in thisinvestment pattern in a manner consistent with the above specifie~ maximum permissiblepercentage amounts to be. invested in each such investment category, w~ile also complying withsuch other restrictions as made applicable for various sub-categories of the permissibleinvestments.
3. Fresh accretions to the funds shall be the sum, of un-invested runds from the past andreceipts like contributions to the funds, dividend I. interest I commissiion, maturity amounts ofearlier investments etc., as reduced by obtigatoryoutgo during the finan~ial year.
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: 4. Proceeds arising out of exercise of put option, tenure or asset switch or trade of any assetbefore, maturity can be, invested in' any of the permissible categories described above in themanner that at any given point of time the percentage of assets under! that category should notexceed the maximum limit prescribed for that category and also should.not exceed the maximumlimit prescribed for the sub-categories, if any. However, asset swi~ch because of any RBImandatedGovernment debt switch would not be covered under this restriction.,
5. Turnover ratio (the value of securities traded in the year I average value ohhe portfolio at• • • I
the beginning of the year and at the end of the year) should not exceed two .
6. If for any of the instruments mentioned above the rating falls below the minimumpermissible investment grade prescribed for investment in that iinstrument when it waspurchased, as confirmed by one credit rating agency, the option of el¢it shall be considered andexercised, as appropriate, ina manner that is in the besttnterestof the $ubscribers.
7. On the$c guidelines coming into effect, the above prescribed investment pattern shall be.achieved separately for each successive financial year through timely ~ndappropriate planning.
8. The investment of funds should be at arms length, keeping solely the benefit of the,'beneficiaries in mind. For instance,' investment (aggregated aCross such companies Iorganizations described herein) beyond 5%of the fresh accretions in a financial year will not bemade in the securities of a company I organization or in. the securities of a company Iorganization in which such a company I organization holds over 10%:of the securities issued. by .a fund ceeated for the benefit of the employees of the first company I organization, and the totalvolume of such investments will not exceed~% of the total portfolio ofthe fund at any time.Theprescribed process of due diligence must be strictly followed in sue~ cases and the securities inquestion must be permissible investments under these guidelines;
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THE GAZETTEE OF INDIA - EXTRAORDINARY (PART 11- SEC,3 III)]
9. ..;
i. The prudent investment of the Funds of a trust I fund within the prescribed patternis the fiduciary responsibility of the Trustees and needs to be exercised with appropriateduedillgence. The Trustees would accordingly be responsible for investment decisionstaken to invest the funds.
ii. The trustees will take suitable steps to control and optimize the cost· ofmanagement of the fund.
Hi. The trust will ensure that the process of investment is accountable andtransparent.
iv, . It will be ensured that due diligence is carried out to assess risks associated withany particular asset before investment is made by the fund in.that particular asset and alsoduring the period over which it is held by the fund. The requirement of ratings asmandated in this notification merely intends to limit the risk associated with investmentsat a broad and general level. Accordingly, it should not be construed in any manner as anendorsement for investment in any asset satisfying the minimum prescribed rating or asubstitute for the due diligence prescribed forbeing carried out by the fund I trust.
v. The trust I fund should adopt and implement prudent guidelines to preventconcentration-of lnvestment in anyone company, corporate group or sector..,; . .. ,
10. If the fund has engaged servlces cf prcfesslcnal fundI asset managers for management ofits assets, payment to whom is being made on the basis of the value of each transaction,the valueof funds invested by them in any mutual funds mentioned in any of the categories or ETFs orIndex Funds shall be reduced before computing the payment due to .them in order to avoiddouble incidence of costs. Due caution will be exercised to ensure that the same investments arenot churned with a vieW to enh~cing the' fee payable.ln this 'regard~ commissions forinvestments in Category 1Il instruments will be carefully regulated,in particular.
(F.No.G- 20031/1/2007 .SS~II(Pt.)]
(Man,ish Kumar Gupta)Jt. Secretary
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On Fri, Dee 18,2015 at 4:27 PM, Siddharth Srivastava (DllSL) <ssrivast'ava<ffillse.co.in> wrote:Dear Ankur,
It was pleasure speaking to you on Monday, December 14th.
In continuation to our discussion~, we have performed an initial analysis and the observat\Ons are givenbelow:
1- There are 162 stocks traded on NSEwhich have derivatives o'n them. Out of these 162 stocks, 144have full market capitalization of greater than 5,000 Cr. (Eligible universe for EPFO)
2- As discussed in our meeting, as on date NSEhas following smart indices - Nifty Quality 30, NlftySOValue 20, Nifty Low Volatility SOand Nifty DI"ldend Opportunities SO.
Based on the eligible universe of stocks for EPFO,constituent breakup of our current smartbeta indices is given below. All current constituents of Nifty50 Value 20 are eligible forinvestments; whereas 4S out of 50 and 29 out of 30 stocks are eligible In Nifty low Volatility SOand Nifty Quality 30 index.
Apart from .Nifty Dividend Opportunities SO Index where aggregate constituent weight of EPFOeligible. stock is around 90%, for. other smart beta indices It's in 98%-100% range.
Dividend Yield
~15% StockCap
1year Volatility
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3- Returns and Volatility profile of our existing smart beta indices along with dividend yield is givenbelow. Nifty Quality 30 and Nifty Low Volatility 59 has outperformed Nifty 50 considerably in previous 5year period and has lower volatility too.
Next steps and Proposed Action Plan:
1- Develop and analyze new Quality and Low Volatility indices with stocks which areeligible for EPFO.These indices will consist of 30 stocks and will be created with 5 yearhistory.
2- Based on the correlation, we will analyze and shortlist which smart beta factorscan be combined to deliv~r better performance ( for example combination of Low·, "
Volatility and Quality parameters)
We can have a call next week to finalise the next steps and start the analysis
Warm regardsSiddharth Srivastava
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•Item No 6: Concurrent Audit Reports of Provident Fund (including other funds) and
Pension Fund for the month of December 2015 & January 2016."
1. As per the decision taken in the 1961h meeting of Central Board, EPF held on 20.07.2011',MIs Chandabhoy & Jassoobhoy was appointed as External Concurrent Auditor (ECA) ,forconducting Audit of the Fund of EPFO managed by the Portfolio Manager, ',. 'Central Board, EPF'in its 205m meeting held on 19.12.2014 has approved the extension ofthe period of appointment of MIs Chandabhoy & Jassoobhoy as ECA on nomination basistill October 2016 on the earlier terms and conditions,
2. As per the tennsand conditions of appointment of ECA, following clause/sub-Clause ofChapter 2 ofRFP i.e. Duties and ResponsibiUtles of External Concurrent Auditor(ECA)with regard to submission of monthly report accordina to scope of work, foUowinaimportant points are mentioned below:
,. Reconcile the funds flow and Bank Accounts of EPFO with the Port folio'Managerfs) on a monthly basis.
> To examine and verify whether the fund managers have followed the investmentpattern, investment guidelines and the terms of agreement entered into betweenEPFO and the fund managers.
,. To verify whether the interest and maturity proceeds are collected promptly and re-invested as per the provisions made in the Pattern of Investment. Also to point outdelays, if any, and the causes for such delay .
> To verify whether the incentives, whether receivable from the institutions, are . ~collected promptly and invested as per the prescribed pattern/guidelines.
}> To bring out ~es of'undue delay in the receipt of incentives. .}> To verify whether proper records have been maintained in respect of all transactions
and contracts and to ascertain whether the records are correctly and timely updated.,. To verify whether all shares, securities, debentures and other investments have been '
held in the name of Central Board of Trustees, Employees' Provident Fund .)0 The concurrent audit needs to be carried out and~eport submitted to the EPFO
on monthly basis.)0 In Audit Reports, audit observations regarding Pension Fund, Provident Fund, EOLl
Fund, E~F Staff Provident Fund, EPF Staff Pension and Gratuity Fund etc., shouldbe categorized separately as separate accounts are maintained by EPFO. ConcurrentAudit report on Pension Fund shaD be bound separately and a consoUdatedreport on aD other funds shall be bound separately fOf submission to EPFO.
3. MIs Chandabhoy & Jassoobhoy, ECA has submitted Concurrent Audit Reports of ProvidentFund (including other funds) and Pension Fund for the month ofOecember 2015 & January2016. The same-is submitted before the FIAC meeting for perusal and directions, iCany.
" .,':
• Employt~es"."0'/., h:Il:.; {u"d O.~&~,.;.•;.•:.Uon(Pr; EDLl Fundi EPP Staff PFi EPF staff Pension and Gratuity Fund)
Concurrent audit report for the month of December 2015
--".
PART 1 - EXECUTIVE SUMMARY
- .-Sr. ParticularsNo.1. Instances of non-receipt! delay and short In receipt of fund (Refer Para (b)- HSBC, telcl,
Reliance, 5811
2. Securities matured but stili renected In the system and custodian holding (Refer Para (b) -
581] _oj3. Instance where Investment was made at the lowest yield. (Refer Para (e):- UTl]
(~ .: :r.
Chandobhoy &. )ossoobhoyChartered Accountants
Page 1 of is
. '.12...
Employees i~"rQvident Fund Organization(PF; EDLI Fund; EPFStaff PF; EPf staff Pension and Gratuity Fund)
Concurrent audit report for the month of December 2015
..Sr.No.
Audit Observations
1. HSBCASSETMANAGEMENT(INDIA)PVT. LTD •
• ) Review 0' Fund flow vis-I-vis bankaccount:We have reviewed funds IMow and outflow We· are in confirmationfrom MIS provided by the Portfolio Manager with the observatlori.(PM) and found the same to be In agreementwith the Standard Ch<trtered bank (SCB)statement.
b) Review of MIS of Custodian:
We were informed that Standard Chartered We are In conftrmationBonk (the Custodian) provides following MIS with the observation.reports:I. Oally settled trade reportII. Expected ta$h Flow for . Non GSec
Securities for next dayIII. Oally Non G See Holding StatementIv. MonthlYI Weekly expected Cashftow
• We haveveriRed dally settlement report We a.re in cOl'lnrmatlonand found that generally the transactions with the observation.are settled within one or two days. •
• We have reviewed the expected cash flow We are In conl'lrmatlonstatement and (ound the same to be In with the observation.aoreement with the bank statement of nextday.
• We have reviewed the holding statement We a~ In contirmatlon~eiV'" from Reserve Bank of IndJa~Public with the observation.Oebt Of1lce (In respect of G See) .anct sea(In respect of other securltle$) arid foundthe same ·to be In agreement with .thestotement proYlded by the PM.
~ HOlding Statement as provided by thePortfolio Manager Is given In AnMxur. IV(A).
However, in few cases, we. ob$erved nonreceipt of funds, details of which ~re givenin Annexure I (A). .
Replies 0' theAudlt.e
.: Remarks as toflna. disposal 0'the observations
Please refer to ourresponse In Annexure I(A).
~.--~------------------------~--__. .__L- _
Chandabhoy Sa Jassoobhoy.Charter~ Accountants
Page 2 of 18
¥---~--..!~. -- - -._-_.-----.--_. _. ----~---------
lI.~lj~p:;~,.ycl';;;,'iProvidunt run .. u~gdui.L~UO'l\(PP; EDU Pundi E?F Staff PP; EPPstaff Pension and Gratuity Fund)
Concurrent audit report for the month of December 2015•••
Replies of.theAudlte..:
Audit Observations Remarks as tofinal dlsposa. ofthe observations
Sr.No.
•telCl SECURlTlES PRIMARY DEALERSHIPUMlTED.
2.
a) Review of ,und "ow vls-;\·vt. bank accoun~We have reviewed funds Inflow and outflow fromMIS provided by the Portfolio Maneger (PM) andfound the same to be In agreement with theS,tand.ard Chartered bank (SCa) statement.
It) RevieW or MIS or Custodian:
We were Informed that Stendal'4 CharteredBan~ (the CUStodIan) provfdesfollowlng MISrepeNts: 'I. Daily settled trade reportII. Expected Cash flow fer Non GSec
Securities for next dayIll. Pally NOnG See Holdlng StatementIv. Monthlyl Weekly expected cashflow
• We have verified dally settlem¢nt report andfound that generally the transactions aresettled within one or two days.
• We have reviewed the expeCted cash now •statement and found the Arne to be Inagreement with the bank stallement of nextday.
However, I,n few cases, we observed non Pluse refer to 'ourreceipt and short i'ecelpt of "-'ds, details of response In Annexur.whIch are given In Annexure t (8), 1 (8). '
We hove reviewed the holding statementreceived from R.eserve Bank d 1ndl.· PublicDebt omce (In respect of G See) and sca(In ~P«!Ct of other securities) and foundthe same to. be In agreement with thestatement ,provided by the PM. "
- Holding Statement a. provided by thePortfolio Manager Is given In Annexur. IV(a).
Chanda bhoy a JassoobhoyChartered AccOIJntaots Page6Q' 18
•••••'" "
, . '
• 0".' ,,;:.~.• '. .>.._;...,..:"', <
• Employees Provident fund Organization(PF; EDLI Fund; EPFStaff PF; EPFstaff Pension and Gratuity Fund)
Concurrent audit report for the month of Dec:ember 2015
• '.'"
Sr.No.
•RELIANCe CAPITAL ASSET MANAGEMENTLTD.
.·.·Replles ot theAudit ••
Remarks as tofinal disposal 01the observations
3.
Audit Observations
I) Review 0' Fund now vIs-A-vis bank account:We have reviewed funds Inflow and outftow frotnMIS provided by the Portfolio Martager (PM) andfound the same to be in agreement with theStandard Chartered bank (SeB) statement.
b) Review or MIS from Custodian:
We ·were Informed that Standard Charteted Banlc(the CUstodian) provides following MIS reports:
I., Dally seWed trade reportH. expected cash Flow for Non GSec Securities
for nen dayHI. Dally Non G See Holding StatementIv. Weekly expected t:ashtlow
- We have verified dallv settlemeftt report andfound that generally the transactJons aresettled within one or two days.
• We have reviewed the expected cash now ,statement .and found the same to be inagreement with the bank statement.
However, In 'ew cases we have observed non Please refer rernarks 'nreceipt and short receipt of fUnds.Details 01the Annexure I (~).same are given in Annexure I (C).
We hove reviewed the holding statementreceived from Reserve Bank of Indla- PublicDebt omce (In respect of G S«) and sea (Inrespect of other securities) •••• found thesame to be In agreement with at statementprovided by the PM.
- Holding Statement as provided _ the PortfolioManager Is given In Annexure rI Ie).
C) DallyTransa(;UonG• We have verlfted daily transa(tians pertaining
to Investments made In various Instrumentsalong with the available marte data. Ourobservations· In connection with •• above areas under:. .
I. ..heed deposita: No Fixed dtposits werepurchased during the month.
Chandabhoy , Jass~yChartered Accountants
31
••
Page 9 of 18
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•
i:.!,.; \'.''.•. ( •: (
: l, .
Ifrnpl,,,1' ;;;,¥':;':'; Prov£dent fur'id Orgauii£aUon
(Pf; eDLl fund; EPF Staff PF; EPF staff Pension a~d Gratuity Fund)Concurrent audit report for the month of Deciember 2015
i
Sr.No.
Repn~Sof theAu~ltee
Audit ObServations."
I
Remarks as tonn.1 dispoSal otthe observations
4. STATE BANK OF INDIA (AM~)... . .. :Ii) Review of Fundnow YlSo>~-vlsbanle account:
We have reviewed funds ,"now and outflow fromMIS provIded by the PMand found the same to beIn agreement with the bank statements orStandatd Chartered & 581 (5eC:urlty Serviceeranch).
b) Review of MIS of CUstodian:
We were Informed that Standard Chartered Bank(the Custodian) provides following MIS reports:I. Daily settled trade reportII. Expected cash Flow for NonGSecSecurities
for next dayIII. Dally Non G See Holding StatementIv. Weekly expected cashftow
- We have verlned daily settlement report and NoCom~nts required.found that generally the transactions are 'settted within one or two days. '
NoComm~ts required.
NoComm.,nts r~ulred.
• We have reviewed the expected cash nowstatement and found the same to be Inagrlrement with the bank statement.
,
However, In few cases we have observed non Explanation provided Inreceipt and short receipt of funds. Details of Anne)(ur~1 (D).the same are given In Annexure I (I). .
• We. havCl reviewed the holding state"mentreceived from Reserve -Bank of Indla- PublicDebt Offic;e (In respect oI.G See) and sea (In.respect of other securities) .found the same tobe In agreement with the statement providedby PM, extept on an occasion, details or whichare given below:
There w.. no dlffe~ceas such: In the twoholding . reports.However; the holdingdifference appeared due. to updating wrong IStN,tOr on. security , whichwas reCtlfted on thefollowing: day.
In few cases, securities ball, been already Explanation provided Inmatured but still shown In HDlding statement Of Annexure U.PM as well' as In Custodian holding statement.Details ot the same are given 1ftAnnexure II.
Ham. 0' 7.'...,GOI2034 7.40"Sealrtc, eon.sroQ(:ao:ssHolding u 1.29.17•.10,000 5.80,91.55.000_Ra, (A)HOhIIn, •• 7,10.15.65.000 .,. sa'IPI*Ora)DIrf.....,ce (5.8G.98.55.000) 5.80.91.55.000(A-B'
However, It was observed ~ In the month ofNovember 2015, security '7.40'" GOVT.STOCK203S' eorreetty refttctecI a holding of5,80,98,55,000 In the $'(Stem.
• Ho1ding Statement as provided by the Portfolio.Manager Is given in Annexure IV (D).
Chandabhoy • JassoobhoyChartered Accountarits
eo
32
Page 12 of 18
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31-Dec-13 9.32pc I'SIOC ••. 2006-1 JCC8Red 93,200 93,200 NDt' reeeIwed r..-rIa.UMble litall" die '""" ilar4ale, IS£C I'D atan« widJ29HGor2016 1M tullDCty ISC8J_ fDllfMlncvp Withdw 1_. ~ toIIIIe hit.
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11.25% Ooda-' Maratlnnela Bond As eclrioo:d ~ the nftdaft SC8 .011-'"'""'"'t ttIlllnolrd.1 ,,",""hIWIIII·12 1I.2!!O · . 11.250 \lot rem..ed tile t_er --., _ tanh lIIb!retIIpt"IIIMItt ._ I. UftAb1r to•• V.f". 8 Red ISJllft13
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7,apc PSl'ocSr 20(15..1NeB ~ 54,_AS_wiled '>' the nwtodfa" SC8 ,0. 8CIeCIUIIt01 IIMna.1 ""nch
31·Dec·13 54.600 · III1lNCehed die 1._ -.td ••• reItI\t tntemt ~ I_Is UftltN<- to26J.,,2016 co_"",, tM rewlled p"y d.'e.
7.8pe P!JDC 51'200s·1 HCB Red As IIIMIed Ii)' the C\lstadlsn sea .Oft --.nt 01 nllllncttlltrunch26-Jlln·14 1.161 · 1.167 Hot ftCdn:d tile I_er C"OUIiIftII( n!lftttmtcrtst.,.,.mt t_e, I~ """"~ '0Nan2016 amllrm 1M rewI!II!dpe, date
1.11p: PSlOC 51'200S:1 ffCB Red Aa •••.••••• Ii)' tile cvlltadtotft SC8 .Oft 8CII:fIIIfII.ttIlftftlll'lCllllnunc.,26-.1l1li·14 210.000 · 210.000 !tot ftCdn:d tile ~ -.1iI ftII( remit tnlemlt peJIM'IIl I.suet illUMble' toaJaa2016 ••••••• tIIe·~ •• ,date.
As ••••••• ~ the ntttocIIIIft sea .Oft IIC'I:QrIntof IInandelmind!31· ••• ·14
9.05pc PSlOC NC8 2nd 51'DOlI. 325,800 · 315,800 IIot ftCdftd tile '-'er ,,"Id ndt remit tntaat pII)'IIICfttIssuer itIuMIIk 10Ine1t II Red t61'ttQ I leon •••• tile rewI~ ,., ••••." Aa•••.••Ied·1Iythe cv •••••• SC8.On _lit 01DnllMW au~
31·Mar·14 9.32pc PSlOC HCB I. Sf DOA24Ap09 192.lOO · 79:UOO NatMriwd tile ~ _iii not '-'t Intert:llt".,..,.mt I_Is unable 10Red 23Apr19 -'Iim the "",led .., elate.As 8IM!IedII,- the cuaadtim SCh .On Ilt:ewnt ttIl flns""I.' n-unr.h I
3O...JUII·14· " .• 3pc PSIDC Sr 2009-11HCO Rtd 330.050 · 330.050 !fat NCehed tllet_er _iii not remit tn_ ~ 1_ ill uMblr •.••09Jul2Ot9 aJIIfIrm tile R\'fsed .., ._e.
As "''''!Ied '" UK cullOdlan !'OJ ,On _lit ttIl ftrWMi" cnll..:h3O·Sep-14 9.05pe PSrOC1faI 001 1'1Sep09Red 27.150 · iT.1SO tfcIlned¥ed tile I-.rClllUlcl Mt '"'" IIItcrtIt ~t 1_ is unal* to16Scp2019 mtIIIrm tile rewIIed II":' elAte,
9.32pe ~b PIn Corp IIr III Neb DO" As atIriIIt'd II,- tile eu$tadill1l Ben .~ lIt't'OlIfttg[ n",,_,,1 m.nrhI·Dec·14 4.G!\? · 4.eM Het_~ 111.1-...,..,.. ~ ,.1IIt.11It_•• """"",t ,_, 'a IIn••"", ••,01Dec06 Red OI~16 fconftrm tile ""'led .,., d"le.
iU2pc Puftjall St lnd DeYUNCBAs acIriteII Ii)' tile custodlaJt sea .011 -.nt g[ flftlUlrialcrufl<'h
31·Dce-14 ~SI.640 · ~1,640 _NCehed tile '_-.td not remit intert:llt JIII)'IIIeIIt 1_ •• unablC'10DOA8gebO'Tl'sttRIld 1'eblO1S Omt _ftrmthe ~ 1M' • .ce.
7.8pe rs:OC 51'2005-1 Men Red As ac1rite111Iytilt o:aModlM sea .On _ fIInn"nrtlli tTUIII'hJl·0ec·14 38,220 , 38.220 ffot m:rin:d tile '-ercould :1otleml1 \nterUt,,.,"Ilelll Is~uer 's unabl«' 10
l6J.n2016 _""" tt:e !'eO'illrtlpIl, illite.As ",i!tCCI by thr eulOlnlHallSC8 .On _ ttIl fllI.nn..l crunrh
lfWut-lS 7.lIpe I'SIOC Sr 2005-1 HCb Red 1.167 · 1.167 "fit ftCdftd tile t.MIu could not """" tntrrea JIIlYIMIIt tuuer i'll unabl«' toNIIII2016 -'1l'1li 1M !'eO'I•.•• 1M)'dIlte,
A5/1dYi.e.t by the c:t!uodIJm SCB .On I('t'IMIIIIttIl nn..,.1 eN,,",26.J811·15 7.Spe !'SIDC Sr 2005-1 HCO Red lID.OClO · ffot rem-! tile bLOU•.••(m"d not f'CftIitfntenost P'Ylft!!IIt l-wr I. vn"bk 1<>
2(,Jnn:2016 210.000 amIInn Ill<:rtTIsed pay dille.As adr.!tCCI by tht eustDdllln SCf.l .On _lit 01 nn.llrial m.nrh
•. 32pc: ""..,. •• lit , •••• ()e1> l1NCIJ 7.859. · 7.859 !fat~ tile t•••••er muM not~t IntCft!l( paymetlt ,_ i,. liMbIC'101·F'cb-IS . DOA8P'ebCJ'1 PIII'tIted7'eb201 5 ~ le<mftrm thf' ""'- 1M)'elate.
As adn.ed by the culltadfan SC8 .0Il-.nt oIn"""",,t rrunrh9.32pc PlmJab St Illd OI:y UlfC8 810.000 · 810,000 Hotra:ti¥ctl tile t_ eould ftII( t'rm!1 fnt~st Pl)'lllelil l..uer i~ uMbl«' II)7·Feb·15 DOA8F'rbO'T PIlnRed 7Fcb20IS Dml t:<IfIDrm\l1e~pIlr·d"lr.
I Ail eclri!tCCIlw the eu !tad' ••" SCB .0Il1InWII1 01 fi"""",~' <runtll3J·Mllr·15 9.32pc PSlOC fiCO lal sr DOli Z4Ap09 7')2,100 i 792.200 III1lm:dml tile i_a- could ftII( rt:mit intcrr!tt JIIl1I'IIC'IItI_Is ":\Rbl~ 'I)Rd23Apri. I c:ontlnn lhc ft\'\d pay dllte.
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ConCUrrent Audlt Cor the mouth or Decemhr, 2018.' '
Port Folio MaJlager: State Bank or tndJa CAMe) iI
Aftnexure nlIInataJlces where securltles haYe been mstare« • etW showmcm the system a. weUa. castod.Jan hold"g
- 8ecur.lty-lfam&- 8ecurJty Code Face Value Mabtrit7Date F.1lnd.M-.cer's Response
13.75% UP SFC 2007 501004 50.000,000 29..Jan-07 We have oeen aov'iseil" by th~Custodian-SC-B--that--for-a,
L2.300/••UP SFC 2007 II ISSUE 501006 LOO,OOO,Ooo 20-Oct-07 these securities legal cases arc pending fOr recoverv.r, "
, . .•Therefore, these securities have beenkept as part 0
12.50% UP SFC 2009 501008 20,000,000 ~ 17-Feb-09 holding. I-
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• Empl<..ij;:;":':S PrCVluent Funu Or9"'4 i:':;;.Jeion(PF; eDU Fund; EPP Staff PPi EPP staff Pension ard Gratuity Fund)
Concurrent audit report for the month of DeFember 2015
--------------------------------------------------~----------------------Sr.No.
Remarlu .s to nnaldisposal 0' theobservations
UTIAMC ltd.5.
Audit ObseQlatlon. Replies of th. Audlte.
I '
.) Review of I'Und flow vls·;\·vls bankaccount:We have reviewed funds Innow and outflowfrom MIS provided by the Portfolio Manager(PM)· and found the same to be In agreementwith the Stondiilrd Chartered bank (SC8)statement, except on 19.12.2015 where nodeteils pertaining to InRow 01 funds wereentered In the MIS though an amount ofRs.81,S4,2201· was reftected In the bankstatement.
,,
The revlsedl reportsubmitted to 1e Auditoras well as EPFi'
b) Review 0' HIS 0' Cu.todlan:We were Informed that Standard CharteredBank (the Custodian) provides following MISreports:I. Oally settled trade reportII. Expected Cash Flow for Non GSec
Securities for next dayIII. Daily Non G See ~Idlng StatementIv. Monthlyl Weekly expected Cashnow
- We have verified· dally settlement reportand found that generahy the transaetlonsare settled within one or two days.
• We have reviewed the expected cash flowstatement and found the same to be Inagreement with the bank statement ofnext day.
We have reviewed the holding statementreceived from Reserve Bank of India-Public Debt Office (In respect. 0' G Sec:)and see (In respect of other securities)and found the same to· be Iri agreementwith the statement provrded by the PM.
- Holding Statement as provided by thePortfolio Manager is given In Annexure IV·(!).
,
.' .
.,Chandabhoy & J.JssoobhoyChartered Accountants
Page is ot 1I~
• Emp}oyees Pro\l iU4!H~i &',;,. :); ;;;H~h~,;\.ion(PF; EDLI fund; I!PFStaff PFi EPf staff Pension a.,d Gratuity fund)
Concurrent audit report for the month of De~ember 2015
•
,.,
Sr.No.
Remarks lIS to tlnaldisposal of theobservations
C) Dally Trannctions: i
Audit Ob •• rvatlons Rep" •• 01 th~ Audlte.I
We have venfleddally transactiOns pertainingto Investments made In various Instrumentsalong with the available market data. Ourobservations In connection· with the above areas under:-
I, Fixed depositS: No fixed deposits werepurchased during the month.
". Corporate bonds: Punds are Invested InAN. securities reported by CRISlL /lCRA ICARl!. W. were Informed that the rundmanager collects quota tor ~ aboveInstruments from v..-loUs brokers I ,ellers,The ft.tnd manager'. Investment de4SIon Isbased on the 1nstruments .,raringoptimum yield. We venr-, above dealtransactions . based on .(Omparatlveweighted average pr1c:e and yield reportedon websites of SSE, HSE and FlMMDA.
III. Go-vernment S.curltle5~ Investmentsare made In State Govemment securitiesbased on prlee offered on NegotiatedDealing System - Order Matching (NOS-OM). We verified abOve deai transactionswith high, low and weighted average priceand yield of the sectJritle$ on the COL',website.
Howev.er, In a particular case it was Explanation provided Inobserved that investment ·was made at Annexure rn,the lowest yield, details of the same aregiven In Annexure m.
IV. C8LO Lending: fundS are generallyInvested at ~arby weighted average rateas reported by CClL
v. C8LC Borrowing: During the month PMhas borrowed funds from CBLO. Funds webotrowed rcw the purpose of partJdpatlon." primary auction of Governmentsecurities and Corporate bonds. PriorIntimation rot the aforeAlct borrowing Inthe specified fQrmatwas sent to EPFO.
vi. tn respect of securities purchued duringthe month, apart from deal ti(kets, wehave verified their ratings on CIUSll/lCRAI CARE websltcs.
Further we. were Informed by the PortfolioManager that none of tN securitiespurchased during the month or held by
t. them are downgraded.---'"-,------- ..1.. ~----.-'____~ _
Chanda bhoy l lassoobhoyChartered Accountants
Page 160' HI
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Employees Pro'd4eut hu4 Orpalsatlou(PF; EDLI'FaJlcl; BPF Staff PF; EPP ·narrPeIUlJo••• 4 Gratalty ruud,
CouCllnellt AucUt fOr the molltJa of December. aus
Port FoUo .aaacer: UTI AIIlC Ltd.1"
AaDexure IIIl.staDe. where IDvestmeat •••• bee. DlIl4eat the lowest yield
, Market ctata
Date If••• of security AmOUJlt (Ra., Tle14 Low mch Welcbted Fuu4 MS1Iacer"a RespouseyI~4 yle14 .~"'eltl 4
I6-Dec-15 8.32pc 001 Stock 2032 Red 158,055.000 8.07 1.07 8.10 8.07 . .02Aug2032 1't\eweighted ~ yield was 8.0718
wIdth is dose to the yield oIa.0701 ofour trade. OUtor total amount traded ofRs 16 Crot"e. trrI EPFO trade qUflIItumwas Rs 15 Crore (93.75 %of totalvolume'
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Concurrent audit report for the month of ecember 2015
• PART 1 - axacurrve SUMMAR
Sr. • Particulars 'i
,No.
,
1. Instances of short receipt of funds [Refer'Para (b)- tctct, R~lIaQce)V, •.. i ' • .
2. Securities matured but stiR reftected In the system and itodlan holding [Reter Para (b) •
S81] II
'III
, I
II
Chandabhoy • lassoobhoyChartered Accountants
Page 10' 21
"~----,.-----:-----------..-,-.--------:..,--.--_:...._--,
•Employees Providan~ 'FundOrgan.lzftlon
(""'. ".
Concurrent audit report for the month of Dec~mbar 2015
Sr.No.
Audit Observations Replies of theAudltaa
2. l(ttl SICURlTtI!S PRIMARY DEALERSHIPUMlTED.
•
a) R.vtew of Fund flow v'~'.vl ••bank account:We have reviewed funds Inflow and outflow tramMIS provided by the Portfolio Manager (PM) andfound the same to be In agreement with theStandard Chartered bank (SC6) statement.
b) Reylew of MIS 0' CUstocnanlWe were Informed that Standard Chartered Bank(the CU$todlan) provides following MIS reports:I. Dallysettled trade reportIt. e,cpccted Cash Flow for Non GSec:
Securities for next dayIII. DallyNon G See Holding Statef!1entIV. Monthtyl Weekly expected Cashi10w
• We have verified dally settlement report andfound that geMnll1y the tnnsactfons aresettled within one or two days.
• We have reviewed the expected QISh flowstatement and found the same to be Inagreement with the bank statement ot nextday.
However, in one Instance we observed short Please refer remarks inreceipt of funds, details of which are given In Annexure 1 (AlAnnexur. t (A). ~
• We have reviewed the holding statementreceived from Reserve Bank of India.. Public:Debt omce (In respect of G See) IInd sea (Inrespect of other securities) anet found thesame to be In agreement with the statementprovided by the PM.
- Holding Statement as provided by theP.ortfollo Manager It gIVen In Annexure.JI1 •(a). "" ./'
C) Daily Transactions;
We have verified dally transiKtions pertaining toInvestments made In varIOus Instruments alongwit" the available market data. OUrobservationsIn connection with the i~ are as under:·
Chandabnoy a. lassoobhoyChartered·Accountants
/ ."f ,".-
Remarks as tofinal disposal ofthe observations
",.
Page6 of 21
• Emploiaes Provident'Fund Organization(Pension Fund)
Concurrent audit report for the month of December 2015
Sr.No.
.
,,
"j".,
Audit Observations Replies of theAudJt.a
Remarks .•• to nna.disposal of.theobservations
3. R.EUANCE CAprr ALMANAGEMENTLTD•
ASSET
• ) Review 0' Fund now vis-A-vis bank account:
W. have reviewed funds Innow and outflow fromHIS provided by the Portfolio Manager and foundthe s.m. to be In agreement with the StandardChartered Bank statement.
b) Review 01 MIS or CUstodian:
W. were Informed that Standard Chartered Bank(the Custodian) provides 'oHowI,. M.S reports:
I. Dallysettled trade reportU. expected Cash Flow for Non GSee
Securities for next dayIII. Dally Non G See HoIdlrig StatementIv. Weekly expected Cashflow
- We have verined dally settlement report andfound that generally the transecttons are settledwithin one or two days.
- We have reviewed the expected cash "owstatement and found the 'same to be Inagreement with the bank statlltnent.
However, In few cases we have observed short Please refer remarks Inreceipt 0" funds. Details of the same are given Annexu~ 1(8).
, in Annoxure 1(8).
• We have reviewed the holding statementreceived from Re5ef"\IeBlink otlndia·· Public DebtOffice (In respect of G See) and sce (In· respectof other securities) and found the same to be Inagreement wlth the statement provided by thePM.
- Holding Statement as provided by the PortfolioManllger Is given In Annexure D1 (C).
ChandabhOy&. Jas$oobhoyChartered Ac.countants
Page 100,:n
. '".
Em~ ~4eat I'IuIdOrpaJutioa. (Peuloia'rudJ
CoDC'IIn'eDt Autit rot' tile ••oatil of Dece1Dhr. 2015
bIstIuJcea of .hort neeJpt of ftutcJa
AB_.rellA, Port Folio MaDapr: JetCI Securities Prtatu,r Dea1eribJp J.t4.
72,844
AIIaouat ., AalOlbltDr:peete4 (Ra., Reeelft" (RL" J)Ift'eraee •••• ,, Receipt dateBendt)' Ifame ••••" llaaipn Rapoase
Standard Chartered BanJchascalc:uated the Intcmt ftS
9981 18-Dec-2015 Jper Aetuale.60 Day Basis where as the".su(r has pAidthe Interest a. ~ Actual/365 Day Basis,.~nee ther" is• difference
9,25 PCJlijaya BnJc FOR 001I1Jun14 Red 18DeclS 712285 71.846
(B) Po~ 1'0110lItaaapr: JteJlalace CApital A88et Buapment Ltd.
]lame or 8ec:arlty AlD01UIt . Aat01lllt Durerence (RL) 1Ieoe1pt da.te I"Iulcl •••• ,.... Respees.DtpectecI CRe., Recoin" (Ra.,
9.15 pc Vija". Bnk FDR DOl62413Scp14 Red o IDee 15 734531 197.259 -196,635 I-Dec-20lS
SO.25pe ViJa". Bnk P'DRDOl21Mayl4 Red 03Dec15 - 733237 154,167 152.055 2.112 3-Dee-201S9.15 pc V'ljaya 8n1c FDR DOl
196,129 3-Dec-201515Scp14 Red 03Dec15 734543 195,509 6209.25 pe VlJaya Bnk FOR 001
~28May14 Red 041)eclS 733240 154,167 152.055 2,112 4-Dec-20159.15 pc VJjaya Bnk FDR DOl . .16Sep14 ~ 04Dee15 734673 198,191 197,564 627 +Dec-20!!i Expected Cash P10was per sca MS tentative and the9.25 pc Vijaya Bnk FDR DOl actual aJ:DOUnt ·ofInterest reedved is c:Orftc:t a. Pft'
29May14 Red 05Decl5133243 154.161 152,055 2,112 5-Dee-2015 methodology adopted by Vija,a Bank. As SUch, th~ is9.15 pc Vijaya Bnk FDR ·))01 no dJlference/balance amount receivable.
17Sep14 Red OSDcc15134781 191,854 197.234 620 5-Dec-2015 -9.15 pc: VlJeya Bnk FDR 00119Sep14 Red07Dec15134912 198,187 197,594 593 7-Dec-201~
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9.15 pc Vij~ Bnk FOR DOl20Sep14 Red 08Dec15 734915 ' 197,$74 6261 8-0ee-2011989.15 peVijaya Bnk FDRDOI2~Sep14Red lOOec1S 134918 198~191 197.594. 5971 lD-Oee-201
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Employees Provident Fund Organization(Pension Fund)
Concurrent audit report for the month of December 2015
Sr.No.
4.
However, it was observt!ld that In the month 0'November 2015, security '7.~ GOVT.STOCK2035' correctly reftected a I'oldlng of5,80,98,55,000 in the system.
In few Clses, securities have been already Explanation providedmatured but stili shown in Holding statement of In Annexur. U.PM as well as in Custodian hcildlng statement.Oetails of the Hme are GivenAntlexur. D~
Audit Observations Replies 01 'theA~dlt.e
RemarQ a. tonnal disposal ofthe observatlons
STAT! BANKOf INDIA ("'Me)
a) Review of fund nOw ,,1•• i·.,I. bank account:
We have reviewed funds Innow and outnow from No CommentsM15 provided by the PM and found the same to be required.In aoreement with the ban\( statements of StandardChartei'ed a. S8l (Security Service Branch).
b) Review of MIS of Custodian:
We w~e Informed that Standard Chartered Bank(the Custodian) provides foHowlngMIS reports:I. Oaily settled trade reportII. Expected Cash Flow for Non GSec Securities
torn~dayIII. Oally Non G See Holding StatementIv. Weekly expected Cashf10w
- We have verified daily settlement report and No Commentsfound that generally the transactions are required.settled within one or two days.
• We have reviewed the expected cash now No Commentsstatement and found the same to be In. retauired.agreement with the bank statement.
- We have reviewed the holding statementreceived from Reserve..Bank of India- Public:Debt Office (In respect cI G See) and sca (Inrespect of other securities) and found the sameto be In agreement with the statement providedby the PM, except on an oa:asI9n, details ofwhich are given below:
There was no •difference at SUCh Inthe two holdingreports. However, theholding .dlfferenceappeared due toupdltlng wrong ISIN,toroOnesecurtty, whichWg rectlfted on thefollowing day.
Chandabhoy & Jassoobhoy Page 14 of 21Chartered Accountants
Nlme of 7.' •• GOI 2034 7.400/.Security ~OVT.STOCK
2035Holding 1,29,17,10,000 5,80,98,55,000as perRillA)Holding 1,10,15,65,000 .•• per581 £PfOJ.BlOiff.renc (5,80,98,55,000) 5,80,98,55,000• (A-8)
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Employees ProvIdent Fund Orp.nllJatioJlrPenslon FuDd)<, .CoaC1lftent Aucllt tor the month or December. 2018
POrt FoUo Manager: State Bank or lad" (AMC,Aaacxure I
Instances where accurltlcs haft beea matured a. atII1moWing In the .,atem .a weD a. caatodlan holcUng
20,000,000
Security lIame J Security Code I. Face Value l~a!UrIty J)~~.__ Funel Manapr'1 Reaponee'13.75% UP SFC 2007 I. 5010041 50,000;000 , 29-Jan-07Iwe have been advised by the Custodian sea that for al
1-2.30%UP SFC 2007 II ISSUE 501006 100,000,000 20-Oct~07 these securities legal cases are pending for recovery. .
Therefore, these securities h~ve been kept as part o
17-Feb-09 holding.·12.50~; tiP SFC 2009 501008
~
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•. Employees Provident Fund Organization(PF; EOLI Fund; EPFStaff PF; EPFstaff Pension and Gratuity Fund)
Concurrent audit report for the month of January 2016
•
. :
PART I - eXECUTIVE SUMMARY
Sr. ParticularsNo.
1. Instances of non-receipt! delay and short in receipt of fund [Refer Para (b)- HS8C, ICICr,
Reliance, sau2. Securities matured but stili reflected in the system and custodian hordlng (Refer Para (b) -
5811
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Chandabhoy I'A JassoObt'loyChiutered Accountants .
Page 1 er.rs
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~~':~L., ~A'
'j Employees Provident Fund Organization~(PF; EDLI Fund; EPFStaff PFi EPFstaff Pension and Gratuity fund)
Concurrent audit report for the month of January 2016
Sr.No.
Replies of theAudltee
Remarks as tofinal disposal of
~4 ~-:----------~~----------------_+~t~h~e~o~b-s-e-rv--a-t-1o_n_s~~.1. HSBC ASSET MANAGEMENT(INDIA)
PVT. LTD.
Audit Observations
a) Review of Fund flow vis-i-vis bankaccount:We have reviewed funds Innow and outnow We are in confirmationfrom MIS provided by the Portfolio "'anager with the observation. .(PM) and found the same to be in agreementwith the Standard Chartered', bank (SCa)statement.
b) Review ot MIS of Custodian:
We were Informed that Standard Chartered We are In confirmationBank (the Custodian) provides '~Iowlng MIS with the observation.reports:I. Dally settled trade reportii. Expected Cash Flow for Non GSee
Securitiesfor next dayiii. Daily NonG SeeHoldingStatementiv. Monthly/ Weeklyexpectedcashnow
- We have verified daily settlement report We' are In confirmationand found that generally the transactions with the observation.are settledwithin oneor two days.
• we have reviewed the exJ)eCted'cash now We are in confirmationstatement and found the same to be in with the observation.agreementwith the bank statement of nextday.
However, In few cases, we observed non Please refer to ourreceipt 0' funds, details of which aregivenresp,onse in Annexure 1InAnnexureI (A). (A).
• We have reviewed the holding statement We are In confirmationreceived(rom ReserveDank of India- Public with the observation.Dobt Office (in respect01 G See:) and sea(in respect of other securities) and fou.ndthe .same to ·be In· agreement with thestatement providedby the PH.
____ L ~ __ -- __ --~-----~--------~--------------_J --------
e.
Ch.lrtercd Account.<mts .
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F"
• Employees ProvIdent Fund Organization(PF; EOU Fund; EPF Staff PF; EPP staff Pension and ·Gratulty Fund)
Concurrent audit: report for the month of January 2016
',. .Sr.No.
2.
Audit Observations. :Replies of the
AuditeeRecnarks as toflnal disposal ofthe observations
rercr $ECURmES PRIMARY DEALERSHIPUM.a:TED.
a) Review of Fund flow vls-l-vls bank account:We have reviewed funds tnnow and outfloW fromMIS provided by the Portfolio Manager (PM) andfound the same tq be In agreement with theStandard Chartered bank (SC8) statement.
b) Review.of MIS of Custodian:
We were Informed ·that Standard CharteredBank (the Custodian) Provides foUowlng MISreports:I. Dally settled trade reportIi. Expected Cash Flow for Non GSec
securities for next dayIII. Dally Non G See Holding StatementIv. Monthly/ Weekly expected Cashnow
- We have verified dally settlement repOrt andfound that generally the transactions aresettled within one or two days.
• We have reviewect the expected cash flow •statement and found the same to be Inagreement with the bank statement of nextday.
However, In few cases we obServed nonreceipt. details of which are' given inAnnexure I (8).
- We have reviewed the hOlding statementreceived from Reserve Bank of Indta- Pubtlc:Debt Orflte (11'\respect 01 G See) and sca(in respect 01 other securities) and foundthe same to be In agreement with the. statement provided by the PM.
Please refer to ourresponse In'Annexure11{8).
-.
ChandabhoVI'A lassO()bhoyChartered Ac.countants . ··_t;o Page & of '"
e'-», j.i.;.t.
Employees Provident FundOrganization(PF; EDLI Fundi EPF Staff PFi EPF staff Pension and Gratuity Fund)
Concurrent audit report for the month of lanuary 2016
Sr.No.
Replies of theAudltee
Audit Observations
a) Review of Fund now vls-o\-vls bank account:We have reviewed rundslnnow and outflow fromMIS provided by the Portfolio Manager (PM) andfound th~ same to be In agreement with theStandard Chartered bank (Sea) statement.
b) Review of MIS trom Custodian:
Remarks as tofinal disposal ofthe observatlons_
3. REUANCE CAPITAL ASSET MANAGEMENTLTD.
We were Informed that Standard .Chartered Bank(the Custodian) provides following MIS reports:
r, Dally settled trade reportiI,Expected Cash Row for Non GSec Securities
for. next dayIII. Dally Non G SeeHolding Statementiv. Weeklv expected Cash flow
- We have verined daily settlement report andfound that generally the transactions are'settled within one or two days.
We have reviewed the . expected cash nowstatement and found the same to be inagreement with the bank statement.
However, In few cases we have observed non Please refer remarks Inreceipt and short receipt 01 funds. Details of the Annexure 1 (C).same are given in Annexure 1 (C).
- We. have reviewed the holding statementreceived from Reserve Bank of India- PublicOebt Office (In respect 01 G see) and sca (inresp«t of other securities) and found the sameto be In agreement with the statementptOVldedby the PM4 except on one occasion detailsof which are given below:
N.m. of the 8.24' GOVT lI.ll'lll GOVTSecurity STOCJ( -. 10- STOCK' 22·J\ln-
Noy-2033 2045
HoldIng •• 8.60,00.00.000 2,50,00,00,000per RIIHoldlno as 9.60.00,00,000 3,50,00,00,000per RellanceIPFODlfferen.:. .,00,00,00,000 1,00,00,00,000 .
The difference was on account of purc:hase of Ie.security on 29'~ January, 2016, which was •subseq~ntly settled on the next working dayi,e. 1" February, 2016.
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Chandabhoy lit Jassoobhoy. Chartered Accoutltanl C;
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• Employees Provident Fund Organization(PPi EDLI fund; EPf Staff PFi EPF staff Pension and Gratuity Fund)
Concurrent audit report for the month of lanuary 2016
Sr.No.
Audit Observations
Explanation provided inAnnexur. II.
Remarks as tofinal disposal ofthe observations
Replies of theAuditee
4. STATEBANK Of INDIA (AMC)
a) Review or Fund flow vls--A-vlsbank account:
We have reviewed funds innow and outnow from No Comments required.MIS provided by the Pr-Iand found the same to beIn agreement" with the bank statements ofStandard Chartered &. S81 (Security ServiceBranch).
b) Review of MIS of Custodian:
We were Informed that Standard Chartered Bank(the Custodian) provide> following MIS reports:I.: Dally settled trade reportIi. Expected Cash Flow for Non GSec Securities
for next dayIii. Daily Non G See Holding Statementiv. Weekly expected Cashnow
No Comments required.
- We have verlfled dally settlement report andfound that generally the transactions aresettled within one or two days.
- We have reviewed the expected cash flows.tatc:ment and found the same to be inagreement with.the bank statement .
No Comments r.eQulred.
However, in few cases we have observed nonreceipt, delay in receipt and short recelp.t offunds. Details of the same are given inAnnexure I (D) •
In few cases, securities have been alreadymatured but stili shown in Holding statementof PM as' well as In Custodian holdingstatement; DetailS of the same are given inAnnexure II.
Explanation provided InAnncxu'i'. 1 (D)~ .
••
-- Cti'Jodafltioy--Sl- fclssoobl'iOyChartered Accountants
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fJ'I'\ 1:0£1 ••••••• r.n ••• ..,.,t:PP ••• " •••••••••• 0PatIdt7 hMt
CoDeanent J\• .ut f_ tlte lIIonth or .J_wwy. 2OJ6
••••ta.ne.. of .,., •• 1.,. aft4.Iaert •• _Ipt .f •.••••• Anaell1lre I
fAl PortI.II. __ ...- RUC A-« •••••••• at (Ja4Ja, Pwt. U."ame.or8ectldt)'
AIft_t Reeel,tmffennce Jtecelpt .~te ,.... Mallace"· a-p...•. lPa,. Date ~"rJb.1 Amours.
l..Jun·14 7.85pc Punjeb .Finaneial Ccorpcmttion SrU;U 8.923 NOIrec:eiwd1 .Neb R~ Ot.Jun20J6 nus in.lrument is. Iep~~ l1n\di"!t whieh w•• tntn~ 10 HSBC
1.8s,c Punj.b Financial Corporation Sr AMC; As reponed by the ~ulltocfian • Standard cttan~ Benk. lhel..Jun·I" 1,300,000 1.300,000 "ot~ ~ hea inrM1l!ftf thlll on IICtOUnl 0( ftnaneilll entnch. il eould not
1 NCb R~ OIJull2016 ftmit intetnt ~I. 'l'hf' TII!lUft' ia una~ 10 confirm th\> t'l'\'illrdPfly date. Cuatocly is rollo"ins ul' with the isauer for the inleftat
7.85pc Punjeb Financial eor"or.rion Sr1.300,000 1,300.000 No. receMd payment.l..Jun·IS
I. NCb Red OtJU1I20t6
fJJJJ>ort r.uo •••••qwr JClCI ~ ••• I'rtIuI7~, J.tL
•
Pa'1date If.".. or 8ee1II'fty AnI ••• t Reeel J't Dtft'_ R•••••lpt •• t. ,.... Manar"'. RHpOft_EIlpect •• fJte.J Amountl.uer did not peylhe interftt pIlyment dw 10 fmindal n'Unctl.
31·Dec:·139.32pc PSIDC Sr 2006·, HCB Reel 93.200 93.200 Not~ luutl' ia UMbleto conftnIl the '"*d pay ""~. ISEe PO alone .;Ih29NGv2016 the cuMOdr (SCB) ••.• r.1fowitt. up •.i.h the lauer. 11M•• 1M hII.
""" COI'IImutrit:aWd•• EPPO.1~.lIt'rdid not ,..,. 1'-lnt_1 I'f'yfttl!ft' d ••• to ftftindftl uunch.
31·1)ee·137.8pe PSIOC Sr 2005-1 NCB R~ 163.800 163~8oo Notft'Cei¥ed l!ISIIt'r Is una~ to conlinn the ft'rieoedpay dlltl!. ISEC PO aloil~ v.ith26Jan2016 . the cuatocly 1SC8! .re foIIO,..mc up with the I•• uft'. ~ MIM hllll. ~ COIftm\lllica~ to SPP'O .
'stllltr did not pay the int~1 pIl)'IMlIt due to finiM:ial crunch.
26-.1an-I"7 .8pe PSIDC Sr :zoq5-1 NCB Red 3.500 3•.500 Not~
"!tUft'1s unablt to confirm the ft¥iaed pay datt'o ISEe PO lIlonlv.'ItlI26Jan2016 thecuatoclylSCBlarr rollOwlnc up ••ith the lsauer. Tht'''IM has
been c:omm""leat~ 10 EPFO.
. T •• uff did not pa,. lite inlftftt paymml dw 10 finincial crunch .
26..J&n.I" 7.8pc PSJDC Sr 2005-. NCB Red 630.000 - 630.000 NOt recei¥ed I_ft'ls unable to conlinn the ft¥iIIed pay dale. ISEe PO -1011& .it1l26J1If'I2O16 the CQtody (SC91.ft rotto.inc up withlhe lautl'. n.e _1M h••
~ COIIimunleal~ to EPFO.
laver did not pay the inl~ pl)'lTmlt due to IinlndlJ crunc:h.
3J·Dec·J4 9.32pe PSIDC Sr 2006-1 NCB Red 93.200 93.200 Hot reoeeWed' louer Is unab~ to confirm the revt!Jfd pay dale. ISEC PO aIonl! wllh291'10v2016 the cntody (SCB)·1Ift ronc.winc up ••ith the '.aver. Tht' •• me hilS
~ Commuftica.~ to EPF'O.
. I•• uer did not pay t'- inteft'1lt 1M'ym~t due wfirrineial crunch .
31·Dec·l"7.8pc PSIDC Sr 2005-1 NeB Red .-114.660 114.660 Not m:eiwd I•• uer is unflblt to conftrm the ftYi~ 1'*1da~. ISEe PO alonft ••'if It26Jan2016 . the cUfltody ISCBlare rolJo\\;nc up "''ith the '''IIeI'. The III"M has
.- been communicated to EPP'O .~.
:f.!.ttPS\OCSf 'l<m-\ to Red'SlUti' did notpe,. t'- inlft'eSl 9II)'lMId due to fini1Ieial crunch.I_er I. _bIe to confirm tile ftYi1Ied pIlJ da~. IS!C PO -Ions 1I'ith
26-.Jan·IS 3.500 - 3.500 I'fot~ t26JtIJI2016 be cuatody (SC8J .~ folfowinl up with the Iauer. ~ Mme haa
~ <'Ommanfcated to EI>I"O •.-
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;e...,.,.lS".ape "'De Sr 200S-f /IICBRed~ " J26JMI2OJ6 630.000 I /IIot ~
IIIMIft'dtc1 no( JNIr the in!~rellt p!!yment ~ to rminciAl fflil'lf:lI.
ftMHor IattMllle fa confinn the ~.,.., dfl~. !SEe PO -lont with.tht cvtted, fl!ICBt an robinJ U1Jwfth tile'-r. ~ _me hilsbeen " ••• IIIN Ie I!P'fIO.
630.*;
~,,-. J41'U2pe PSIDCSr 2006-1 NeB Red29'fIfev2O 16 300,000' !'fin remVed
I•••• er did not JNlYlh~ mlernt ")'mflI1 due'., ftnineial t1'\Il'If:hI•• ~ fa u".b~ to confirm the I'e¥iN!d "",' dall!. ISEe pP alonlC _hthe elfatody fSCBt are rollowint up rith the Issuer. '""' __ MSbeeft _IIIU •••• ed Ie £PI'O.
300.000
29./'l0y- IS19.32PC PStDe 5r 2006-1 NeB Red~"0w2C)16 300.000 1 1#01 receiwd
I..., did net ".,. the Interea ,.,..,mt due Ie rminriRJ crunch .•••••• ia unall~ ~. Cf!nllrftl the rni-s JNlYdale. ISIC PO.lone _hhecuetOdy fS(8) are fGIIowIn,"p.-ith ~ ,•• tier. ~ •••~ /'1ft.bftn communbttd 10 EPf'O.
300.000
31.Dec.1519.32pe PSIDC Sr 2006-1 NC8 Red29H0w2016
93,200 93.2001 Net ~
IIIIUer did not JIll,. the internt '.~V1'IIfl\1 d lie to linihrilll c",neh.irlllUer is unable COecmllrm the ~ ,.y.are. rsee PO aton,••;thth cuallOlly fSC8t -l:tDGwincup with eM l..uer. ~ same hasbeeft toIft~to!P'FO.
65.520 65.5201 Net ~Ived
IIIIUer did not .., the Interett payment due te linincial 'MlMb.'esver is UMble to conllrm IM~...s ,., dille. ISEe PO alon, ";Ihthe cuatocfr 1SC8. 1ft rono-in&up wfdl 1M I-.uer-. The Mme hili'bed COIIImllfticattd to !P'FO. •
31.Dec-ISI7.8pc PSloC Sr 2005-1 I'I/CB Red26Jan2016 .
26..Jan.16 ,1. PSlDC Sr 2005-1 NCeRed26J8n2016 340.000 840.0001 Hot receMd
26..Jan.J6 ,7.8pe PSIDe Sr 2005-J NCD Red26Jan2016
fawer didMt ,., 1M iIItflftt ~ •••.•• fmmd.t cNnc:h.I~." UMble toconRtm 1_ ,",led ,., date. tSEC Pt) aloll, ';thtRcu.tod" CSCB)8", rono...ina UJI.tIlt the '''Uff. nr __ has!....C«II,,~"'ted to EPf'O.· .
4.667
r~ 4td not pay the internt ,.,-mmt dw to f1nindotl UVMh..l'Iot reeeiwId ,'''' fa -~ Ie _firm tM rewIaed ,.,. da~. ISEC PO allme ••;th
die euatecIy iSCB) an fo1lGWin&up .nth t_ 1_. The aame ••••1IeeI't eommunil:ated to EI'I'O.
4.667
fe, Pert I'eII•••••• " RalJulH Caplbl ~ ._ ••• _t :r.tL
Am••• t ReceIpt ••• Ipt". r.4 ••••II"'.~ •• 111PayDa. " ••• .,8e<Nrlt,r ,~ Amowat Dill'itft1lft
9.0$pc PSIDC NeB D0117Sep09 Red 108.600 Net~ivedTh. tierip is part 01 1M ~ ponroliD hftndeli doom to ReAM at the
3O-Sep-J4 108.600 liIM or receipt or 1M IMnda'e in Nowent~ 20J I~ The·mlltt~ 01' non16Scp2019receipt or inlftnt ltas Illrelld,. bem taken up wilh t~ COIItJMny.~ reply recef\oed from 1M com,...,. toGUr ~Iera IInd mninftra
9.05pe PSIDC NeB DOl J7Sep09 RedItfltH dial due to finAnciAl ttUnc:h they are I'IOIlIbIe to PI, the
3O-Sep-15 108.600 . Ios.~ Hot rec:eJftd Intereatat prHI!nt. 1'bt! •• id reply •••• al80 been llent to Ef'F'O for16Sep2019 . their intJrmalion and _lrllIl ~_ further courw ellICIion.
£xpe;;Md C.sh Flaw as pet" sca __ tentfttivc and die KlWlI
21·0ct-JS8.75pe HPFC NCB Sr VI DOI2JApr06 ·21.93$ 21.875 60 12~an·16 amount or interest ~i¥ed from t_ Itsu~r i.corrt'Ct. "' •• ""e at('Red2JA~J6 ,....,.,., up with inuer rot internI on delayed JIII)'IM'nt
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Pa, Date e.e.rn:,JtstM' ~ •••• I = DUf~"_ ~o.t. r-.-....(ft .•~-I\If.IIdVItIed .., C1IIlt•••••• see tlwIt Oft IICCOUftI f11l\Jtandalcru~h I"
15..1an·12 11.25%B~ftl5JrI M...-.tbwada13BondSn 11.250 . 11,250 "- ~ f:mteoreeuldNt remit 1nteretlt pe1ftl~nt lewer •• "",,bit to (onfimlV.lnat R.... an tI,u"liIN ,., "'ft!.
1I•• tfvil.d IwcuBtodiftn see thel Oft __ 1'1'oI'''l\~iftlc:ru ••ch.1t3'· Dee-13 7 .8pc I'StDC Sr 2005-1 !feB Red 54.600. 54.600 "ot ~ fnuef _Id ·notremitlnt~. JIIIY1'I"" lisuer IS uiWIb~ to confirm
26Jan2016 ~~ ~ p!I)' date.
. ". IId¥hIe4 "" custodian see thet OftM'tDUl\t 01 finaneW c:runchlh.26..1.n- '4 7.8pe PSlDC Sr 2005-1 NeB Red 1.161· 1.161 Nottec:ei¥ed luuer ceuldnot remitinten:at JIIt1IIIent 1._ lallftlJblt toconfirm
26.1.112016 the ~ JIIIY cIa.te.
A. achillll<l bv custodian SCB that on ft«OUnt of linandal «:nIneh tm26..1 .14 1.8PC PStDC Sr 2OOS·1NCBRed 210.000 .' 210;000 "01 ~ luuerc:ould'not mrtlt interat JMIyment 1~1s .".btuo conrn-m
an 26J.n2016 themieed pAy daft!.
M MMaed b)' ctIICOdiItn sea thItt on ItCCiIUntorllri8netld crundt ~JIM 14 IJ.05pe PS1DC NCB2nd~TDOA 325800 325.$00 "ot ~ IUu« could not remit imerat.,.,.ment luuer II """ •• to cvnllnn I
• 11'- l1Febll Red 16P'eb21' the~ per.... ' JAI ~ b1 c:ultOdian SCD that on /ICCOUIIto(ftio!ant'till crunch~:
9.32pc PSIDC NCB lilt Sr DOl. 24Ap09 792 200 . 792.200 Not tec:eived itsvtr eould IlOl remit intmet pllyment' 1_ Is vnablf' '0 confirm31-Ma,·14 Red 23Apr19 • ~ r'evitIed pay daft!.
AI ~ by c:1I8leIIian SCD lhat "" ~l 0( IiMnciIIJ crunch ~30..1 14 9.43pe: PSfDC 8t'2009-" NC8 Red 330.050 • 330.050 Not 'I'4ICdved ~ •• teInot I'ftIlil inten!8t payment l.aver ia .na" to confimt
un- 09./1.112019 the J't'¥Md JIlt'! eWe. .:
Aa adwItIed lw Wlttodian sce Ulat an aceovftt of IIttanc:iAl crunch tilt3C).Sep-,4 9.OSpe:f'S1DC f'CB001 17Sep09 Red 21.150 27.150 Not recflftd laver .:wid 'not ,.emit in!ef'HI paymettt I.,",", Uftfttm- 10conlil'm
168ep2019 ". •••••• ,., at"'•••AI MhIaed "" culltodlll" SCBtltIit OftMco\Int 01 ftnandlll Crunch Ib~
9.32pc Punjab P'fnCorpS, InI'CB DOA 4657 4.8'57 Not rec:eMd i__ ettald not remit int_ paynN!trt '_is _bit tocvnlil'mI·Dec· I" OIOec06 Red OlDec 16 • . _ tllel'e\'feed.,., cfa~. ' .
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Concurrent Audit fOT the month Qf January, 2016
portrouo Manager.·State. Bank of IndJa lAMe, Annexure II
Instances where seeudtles have been matured & stW showing in the system as Well as custodJanholding---- -------------
Name of securitySecurity Face Value Maturity Date Fund Maacer's ResponseCode
13.75%UP SFC 2007 50J004 50.000,000 29-Jan-07 Wehave been advised by the Custodian sea12.50%UPSF(; 2009" 501008 30,000,000 17-Feb-09that for all these securities legal cases are
11.25%GMlDe SR-SB lSJN13 FVRS 1LAC ' 778533 100,000 1S.Jan-13 pending for recovery.Therefore, these securitieshave been kept as,part or holding.
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Employees Provident Fund Organization(Pension fund)
Concurrent audit report for the month of January 2016•
PART I - EXECUTIVE SUMMARY.':
Sr. ParticularsNo.
1. Securities matured but stili reflected In the system and custodian holding [Refer Para (b) -
S81}
Chandllbhoy. &. JassoobhoyChartered Accountants
PaQe i or 2
Employees Provident Fund Orgc,lnization(Pension Fund)
Concurren\ audit report for the month of, January 1016'.'
Sr.'. No.
Audit ObservatIons Remarks as tofinal' 'disposal 0'the obs.rvatlons
4. STATE BANK OF INDIA (AMe)
RepUuof theA~dltee
a) Review 0' Fund now vls-"-vls bank account:
We have reviewed funds Inflow and outflow from No CommentsMIS provided by the PM and round the same to be required.In agreement with the bank statements of StandardChartered & S8t (SecuritySetvlce Branch).
b) Review ot MIS 0' Custodian:We were Informed that Standard ChartenilS Bank'(the Custodian) provides follOWing MIS reports:t. Dally settled trade reportiI. Expected Cash Flow for Non GSec Securities
for next day , ,itI. Daily NonG See Holding StatementIv. Weekly expected CashRow
- We have verified dally settlement report and No Commentsfound that generally the transactions are required.settled within one or two days. '
- We have reviewed the expected cash flow No Commentsstatement end found the same to be in requhd.agreement with the bank statement.
- We have r~vlewed tne· holding statementreceived from Reserve Bank of India- PublicDebt otnce (In respect. 01 G See) and sca (Inrespect at other securities) (Jnd fOUnd the sa""to be In agreement with the statement providedby the PM.
In few cases. securities have been already Explenat:lon proytdedmatured but still snown lit Holdlng statement of .In ~nnexur. 1,PM as welt as In Custocllan holding statement.Details O(the same are given Anneleur. 1.
c) Dal\y Transactions
we have v.ifled daily transactions pertaining toinvestments made In. various instruments along wi.ththe available market data. Our obSerVations inconnection with the above •• as under:-
I. •Flleect deposits: No "xed depoSits were No Commentspurchased during the month. required.
Chandabho'l &. Jassoobhoy .Chartered AC\7ountants
Page 14 of:
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··fPestslon FIuld)
urrent Audit for the month ot Jazauari, 2016
Folio Manager: State BaDk of IncUalAKe)Annexure I
Insiances where securities have beell"matured'" atJllahowJng b:athe system as wen &I custodlal'l holdJnc
Security Name I Security Code I .Face Value 'Maturity Date/ FUllclMauagel"s Response·113.lo5% UP SFC 2007 501004 50,000,000 29-Jan-07 We have been advised by the Custodian sca that for all•,12. o'y., UP SFC 2007 U ISSUE. 501006 100.000,000 . 20-0ct-07 these securities Jegal cases are pending for recoveJY.f .Therefore, these securities hive been kept as part 0
17-Feb-09 holding.12,50% UP SFC 2009 501008 20,000.000
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Item No 7 : Process of selection of new External Concurrent Auditor (ECA) -regd.
,\
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1. The FIAC in its 123M meeting held on 18.01.2016 has taken the rolto~ing decisions>
Continuation of Mis Chand,abhoy &: Jassobhoy as External,Concurrent Auditor (ECA)till October 20\6.;' : . :Simultaneously start the process of selection of new ECA for which the samecommittee constituted for the selection of Mutual Fund as ETF manufacture shall beengaged,
2. As regards point (i) above i.e. Continuation of MIs Cbandabhoy &: Jassobhoy as ExternalConcurrent Auditor (ECA) till October 2016. the A$enda has already been placed in 211th CSTmeeting held on 16.02.2016.
(i)
(ii)
3. As regards point (ii) above regarding the simultaneously starting the process of selection ofnew ECA for which the same committee constituted for the selection of Mutual Fund as ETFmanufacture shall be engaged. However. it is brought to the notice that C8T. in its 204th meeting(Item No. 16)held on 26.08.2014 has decided that :- .
(a) The task of selection of External Concurrent Auditor (ECA) with the assistance ofconsultant may be carried out by FIAC.
In the same meeting foHowing was approved:-
;~,:4:e•••••:.
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(b) Approved the appointment of MIs CRlSlL Ltd•• as Consultant for Selection ofconcurrent Auditor (ECA).
4. MIs CRISIL Ltd., accordingly prepared the draft Request for Proposal (RFP) documents forthe selection of the ExtemalConcurrent Auditor (ECA), and the same was placed before the 115111
FIAC held on 11.11.2014.
5. The FlAC in its t \ 5111 meeting on the agenda of Request for Proposal (RFP, documents forappointment as External Concurrent Auditor (ECA) for the Employees' Provident Fund Organisation(EPFO) deliberated that FlAC decided that the tenure of present External Concurrent Auditor shouldbe extended till October 2016 on the same terms and conditions on which they were appointed.
6. Thus already CBT has decided that the task of selection· of ECA with the assistance ofconsultant (Mis CRISIL) may be carried out by FIAC. Request for proposal (RFP) prepared by theconsultant in this report is already tabled in 11Sill FIAC.
Proposal: In the light of above,the decision of the FIAC in its 123td Meeting held on18.01.2016 as mentioned above at point L(U) may be reconsidered so as in view of thedecision of 204" CBT held on 26.08.2014 the task of selection of External ConcurrentAuditor (ECA) with the assistance 01consultant MIs CRISIL may be carried out by FIAC.· •· (
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On Fri. Dee 18.2015 at 4:27 PM, Siddharth Srivastava (DlISL) <ssrhjilS\aVll(@nse.co.in>wrote:Dear Ankur,
It was pleasure speaking to you on Monday, December 14th.
In continuation to our discusslons, we have performed an initial a~alysis and the observations are givenbelow:
1- There are 162 stocks traded on NSEwhich have derivatives on them. ()ut of these 162 stocks, 144have full market capitalization of greater than 5,000 Cr. (Eligible universe for EPFO)
2- As discussed in our meeting, as on date NSEhas following smart in,dicli!s- Nifty Quality 30, Nifty50Value 20, Nifty Low Volatility SO and Nifty Dividend Opportunities SO•
Based on the eligible universe of stocks for EPFO,constituent breakup of our current smartbeta indices is given below. All current constituents of Nifty50 Value 20 are eligible forinvestments, whereas 45 out of 50 and 29 out of 30 stocks are eligible in N,ifty Low Volatility SOand Nifty Quality 30 index. '
Apart from Nifty Dividend Opportunities 50 Index where aggregate constituent weight of EPFOeligiblestock is around 90%, for' other smart beta indices it's in 98%-100% range.' .
Dividend Yield
1 year Volatility
;(• 1--~--------Io---"";;:'---4---~---"+---------I: _ ~..:.::=--!:!!!~~!!!l!!.-_-l !t__..Jl-_-.J~--JROE, DIE Ratio, Avg.
, change in PAT•~C'.· ("'.·• I ••
ROCE,P/8;P/E,Dividend
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10%$tockCap
15% Stockcap
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3- Returns and Volatility profile of our existing smart beta indices along.
below. :":':':'~=':':'::"<-="'::':":':":"':':':":''''-=~'':'':'=='&'''''::'=''':'':':::;:'''':'';==-:';::;';''':';':'':''::~.:...::.&j-='':':::';:'':'::':':=-:::'=~-''':';::'';:':'=::''':::'
Next steps and Proposed Action Plan:
I
1- Develop and analyze new Quality and Low Volatility indices with stocks which areeligible for EPFO.These indices will consist of 30 stocks ~nd will be created with 5 yearhistory.' i
III
2- Based on the correlation, we will analyze and shortlist which smart beta factorscan be combined to deliver better performance lfor example combination of Low
• , i
Volatility and Quality parameters)IIII
, I
We can have a call next week to finalise the next steps and start the analysis. I
I
Warm regardsSiddharth Srivastava
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Item No 6: Concurrent Audit Reports of Provident Fund (including other funds) andPension Fund for the month of December 2015 & January 2016.
'.
1. As per the decision taken in the 196th ~eeting of Central Board, EPF held on 20.07.2011,MIs Chandabhoy & Jassoobhoy ~as appointed as Exte~al Concurrent Auditor (ECA) forconducting Audit of the Fund ofEPFO managed by the Portfolio Manager.Central Board, EPF in its 2051h meeting held on 19.12.2014.has approved the extension ofthe period of appointment of MIs Chandabhoy.& Jassoobhoy as ECA on nomination basistilt October 20 t 6 on the earlier terms and conditions,
2. As per the terms and conditions of appointment of ECA, following clause/sub-Clause ofChapter 2 ofRFP' i.e. Duties and Responsibilities of External Concurrent Auditor(ECA)with regard to submission of monthly report according to scope of work, followingimportant points are mentlonedbelows
}> Reconcile the funds flow and Bank Accounts of EPFO with the Port folioManager(s) on a monthly basis. :
}> To examine and verify whether the fund managers have followed the investmentpattern, investment guidelines and the terms of agreement entered into betweenEPFO and the fund managers.
}> To verify whether the interest and maturity proceeds are collected promptly and re-invested as per the provisions made in the Pattern of Investment, Also to point out.delays, if any, and the causes for such delay.
}> To verify whether the incentives, 'whether receivable from the institutions. are .collected promptly and invested as per the prescribed pattern/guidelines.
» To bring out cases of undue delay in the receipt of incentives.\» To verify whether proper records have been maintained in respect of all transactions
and contracts and to ascertain whether the records ate correctly .and timely updated.» To verify whether all shares. securities, debentures and other investments have been
held in the name of Central Board of Trustees, Employees' Provident Fund.)0 The concurrent audit needs to be carried out and Report submitted to the EPFO
on monthly basis.» In Audit Reports, auditobservations regarding Pension Fund, Provident Fund, EOLl
Fund, EPF Staff Provident Fund; EPF Staff Pension and Gratuity Fund etc., shouldbe categorized separately as separate accounts are maintained by EPFO. ConcurrentAudit report on Pension Fund shaD be bound separately a~da consoli.datedreport on aU other funds shall be bound separately (or submission to. EPFO.
J. MIs Chandabhoy & Jassoobhoy. ECA has submitted Concurrent Audit Reports of ProvidentFund (including other funds) and Pension Fund for the month of December 2015 & January2016. The same is submitted before thc FIAC meeting for perusal and directions. if any.
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(Pf; EDLl Fund; EPFStaff PPi EPF staff Pension and Gratuity Fund)Concurrent audit report for the month of December 2015
PART X - eXECUTIVE SUMMARY
Sr. ParticularsNo.1. Instances of non-receipt! delay and short In receipt of fund (Refer Para (b)- HSBC, tCICI,
Reliance, S81]
2, SecuritIes matured but still renected In the system and custodian holding [Rerer Para (b) -
SBI1
3. Instance where Investment was made at the lowest yield (Reter Para (c)- UTI] ..---'-
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(PF; EDLI Fund; ESPP Staff PF;EPFstaff Pension and Gratuity Fund)Concurrent audit report for the month of December 2015
Sr.No.
..Replies 01 the
AuditeeRemarks •• tofinal disposal otthe observations
A'u~UtObservations
1. HSBCASSET MANAGE~ENT (INDIA)PVT. LTD•
•) Rovlew of Pund now vls-"-vl. bankaccount:We have reviewed fundi Innow and outflow We are In confirmationfrom MIS provided by the Portfolio Manager with the observation.(PM) and found the same to be In agreementwith the Standard. Chattered bank (SC8)statement.
b) Review of MIS 0' Custodhlln:We were Informed that Standard CharteredBank (the Custodian) provides following MISreports: .I. Dally settled trade reportN. Expected cash Flow for Non GSee
Securities for next dayIIi. Daily Non G See Holding StatementIv. Monthlyl Weekly expected Casht!ow .
We are In contlrmatlonwith the obseniatlon.
____ L-~ ~ ~------ __ ~------------_
• We have verified daily settlement reportand found that generally the transactionsare settled within one or two days.
We are In confirmationwith the observation.
• We have reviewed the expected cash nowstatement and found the same to be Inagreement With the bank statement of. nextday.
We are in confirmationwith the observation.
However. In ff!!W cases, we observed nonreceipt of funds, details of whlc.h are givenIn Annexure I (A).
Please ref!!r to ourresponse In Annexure I(A).
- We have reviewed the holding statement We an; In conftrmatlonreceived from Reserve Bank of India- Public with the observation.Debt Ortlc:e<In respcc:t of G See) and see(In respect of other securities) and foundthe same to be In agreement with thestatement provided by the PM.
• Holding Statement as provided by thePortfolio Manager Is given In AMexur. IV(A).
*.
Chandabhoy 11Ja5soobhovChartered Accountants
Page 2 of 18
...•...-..."'-~-~.-~--.... ".
• ErnpJ\)'j'i,;i:.S Pro·"h.h:'!tlt 'f\.Ji;;o W,~;,;inikciUUn(PFj EDLI Fund; EPFStaff PFi EPf staff Pension and Gratuity Fund)
Concurrent audit report for the month of December 1015
•Sr.No.
Audit Observations
2. Icicl SECURITIES PRIMARY DEALERSHIPUMITED.
Replies of theAudltee
Remarks as tofinal disposal of.the·observatlons
iI) Review of 'und now vls-6-vls bAnk account:We have reviewed funds Innow and outflow fromMIS provided by the Portfolio Manager (PM) andfound the same to be In agreement with theStandard Chattered bank (StB) statement.
b) Revl,w of MIS of Custodian:
We were Informed that. Standard CharteredBank (the Custodian) provides following MISreports:I. Dally settled trade reportII. expected cash flow for Non GSec
Securities lor next dayIII. Dally Non G Sec: Holding StatementIv. Monthlyl Weekly ~xpected Cashtlow
- We have Verified daily settlement report al'ldfound that generally the transactions aresettled within one or two days.
• We have reviewed the eXpected cash flow ,statement and found the same to be Inagreement with the bank statement of nextday:
However, In few cases, we observed non Please refer to ourreceipt and short receipt of funds, details of response In Annexurewhich are given In Annexure. (8). . I (B).
- We hove reviewed the holding statementreceived from Reserve Bank d India- Public:Debt OftIc:e (In respect of G See) al'ld see(In ""pec:c Of other securities) and foundthe $ame to be In agreement with thestatement provided by the PM.
- Holding Statement as provided by thePortfolio Manager Is given I" Annexur. IV(a).
••Chanda bhoy 80; lassoobhoyChartered Accountants
Page 6 oilS
.- ...•
• Employees Provident Fund Organization(PF) EDLI Fundi EPF Staff PF; EPF staff Pension and Gratuity Fund)
Concurrent audit report for the month of December l015
•Sr.·No.
Audit Observations
, ."3. RELIANCE CAPITAL ASSET MANAGEMENT
LTD.
Remarks .s tonnal dlsposaa ofthe observations
a) R,vlew of Fund "ow vis-A-vis bank account:We have reviewed funds Innow and outflow fromMIS provided by the Portfolio Manager (PM) andround the same to be in agreement with theStandatd Chartered bank (Sea) statement,
b) Review of MIS from Custodian:
We were Informed that Standard Chartered Bank(the CUstodian) provides tbllowlng MIS reportS:
I. Dally settled trade report•• expected Cash Flow for Non GSec SeCurities
for next day'; III. Dally Non G See: HoldIng Statement
Iv. Weekly expected cashrtow
• We have verlfled dally settlement report andfound that generally the tr1InACtJons aresettled within one or two days..
- We have reviewed the expedl!d cash now •statement and found the same to be Inagreement with the bank statement.
Replies of theAudit ••
However, In few cases we have observed non Please refer remarks in• receipt and short receipt of funds. Details of the' Annexur. I (C).
same are given In Annexur.1 (C).
We have reviewed the hold.. statementreceived from ReServe Bank 01 india- PublicDebt orne. (In respect' of G See) and sea (Inrespect of other securities) ••• found thesame to be In agreement with die statementprovided by the PM. .
- Holding Statement as pnMded blr the PortfolioManager is given In Attn,exur. r, (C).
C) DallyTransac:tlons:- We hove verilled dally transadians pertalrunt
to Investments made in various Instrumentsalong with the available mar1Gtt data. Ourobs.rvatlons In connection with Ute above areas under:-
i. I'Ix.d deposits: No Fixed deposits werepurchased during the month.
••ChiHldabhoy ,. lassoobl'loyCha~ercd Accountants
Page 9 of 18
3f
"•
:ai:.:.
1_
• Empl·..lye;;s Provident Fund OrganijO!ation(PFi eOLl Fund; EPF Staff PFj EPf staff Pension al'1idGratuity Fund)
Concurrent audit report for the month of Dec~mber 2015
Sr.No.
Remarks as tonn •• disposal ofthe observations
4. STATE BANK OF INDIA (AMC)•
a) Review of Fund now vls-A·vls bank account:
We have reviewed funds Innow and outnow fromMIS provided by the PM and found the same to beIn agreement with the bank statements orStandant Chartered & S8t (Security ServiceBranch).
b) Review or MIS of CUstodian:
We were Informed that Standard Chartered Bank(the Custodian) provides following MIS re.,orts:I. Dally seWed trade repoftII. Expected cash Flow for Non GSecSecur\tles
for next dayIII. Dally NQnG See Holding Statementtv. Weekly expected Cashtlow
- We have verlneddally ~ent report andI'o\Ind that generally the translJctions oresettled within one or two days.
- We have reviewed the expected cash flowstatement and found the same to be Inagreement with the bank statement.
Audit ObServations Rep"e, of theAUlltee
No Comme ts required.
I
No eommfts required.
II
II
I
I
No Comments requIred.
However, In few cases we have observed non explanation provided Inreceipt and short receipt of funds. Details of Annexure: I (0).the same ate given In Annexure I (0). !
,
- We have reviewed the holding statementreceived from Reserve· Bank or India· PublicDebt Office <In resPect or G See) and sca (Inrespect of other securities). round the same tobe In agreement with the statement providedby PM~except on an ocalsfon, detaQs or whichare given below:
There was no differenceas such: In the twoholding: reportS.However, : the holdingdifference: appeared dt.Ieto updatlnp wrong IStN,for on~urlty. whichwas tied on thefollowing ay.
IIII
i
Name of 7.S~Gol1034 7•.••0"'-Security .GOVT.sTOCK
2035Holding. l~~ 1.29.11.10,000 5,80.91,55,000Mr.81 AHolel •••• •• . 7,10,15,65.000 .per salIfPPOla\~It':-nc. (5,80,98.55,000). 5,80.98,55,000A-a
However, It was observed that In the month ofNovember 2015, security ·7.40~ GOVT.STOCJ(2035' correctly renecteci a holding of5,80.98.55,000 In the system.
In few cases. securities have been already·matured but stiH shown In Holding statement orPM as welt as 11'1 Custodia" holding statement.Details 01 the same are 9'* In Annexure II.
• Holding Statement as provided by the Fortfollo
Manager Is given in ~~nexure IV {_O_). •••••__ --i-,- L _
ex~na~n provided InAnnexur. U.
Chandabhoy & JassoobhoyChartered Accountants
Page 12 of 18
12
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31-Dec-I"9.32pr: PIInjab St IIId On UNCO ~Sl.640 - 251.640 !fot~ the 1__ Id' Mt ~ Interest' JIII)'IMIIt 1_ ,. UMhk toDOA8FcllO'7 PartRed "cb20t5 Omt IlOIIlIrftIltIe nm •••• JIll,. dille,
As MM_ by tM ~ 5C8 ,On ftCII!9iIntofflnllnr.,,1 "",nr"
31·Dec·147.8pe: PS:DC Sf 2005-1 NeB Red 38.220 38,220 If« rftdoetI the iauft'ceutd nO!.emlt Intetetlt ~t 1_ Is un ••~ 1026J.n2016 CDllllnn rt:e J?:riM'd "..,. IIIItc.
As act. i!led by the cuBtndta" SCII .On lIt'CVIInt or 1I".ftC'iIIl rn"' ••••26.Jan.IS
Up!! PSlOC Sf 200501 "CO Red 1,167 1,161 tfnt~ die tnuc: cwld not mnIt Intemlf JIII)'IMIIt ISS\I'!f is unallk 'e26J1IJI2016 1lOII1Im:thf: I'I!'I'I1It'dpfIy IIIItc.
As ad\'illed by theeustoclfltn SCB .On M'Q)unt nl'I\nllnnlll r.nl:u:h26 •.•••n·15 HIJIC' PSlOC Sr 2005·1 NCD Red 210,000 H. rctt\¥ed tile ilIsut.T could not remit lnt_ paymenl '1"""" Is unable ,•.•
26Jan2016 :110,000 conti"" tM P\'Yi!led pay d"le,
At tIdoi...,.. "" tM eustodfltft sctI.On _m or IlnaIlC'iaI eru •••..h7·l"c:O-I5 9.32"" ••••"jab lit ,•••• OftU"CD 7.859 7.8M Ifot rtmftd tile _Uf,;- coulttnet remit 1,,_ paylMnI1_111 unallk '"
DOA8FtbOT PIInRa1."cb2015 Omt . C'Ifll\nn th~ ~!It'd l1li), date •
NlIICM""" lWthe e.ultlldlan SCD.On IIC'nIIillt nI' IInlIf'nlll (r\!Mh7-Feb-1S
9.32pe runJIIb St Ind Oft VICCO 810.000 810.000 Hot reeelved the IUUff~Id not n:mI1 Intft'ni pIlYIIIC'ftl lave- is ""..blt toOOA8hllO'7 I'IInRed 7FeblOI5 Dml cenllmt the ~ pay date,
iAt "ri!Oed "" the CU-S:ocflaftsca .On _ftt or n"••••n ••' ,'T\Ultti
31-Mllr-J5.9.32pc PSlOC NC8 Isl Sf OOA l4Ap09 792.100 792,200 "..~ die ;!m:er could not -rant! intcn'st ptymml InverIS \ll1abk- '0Red 23Apr19 I connnn the ,,",:!Cd pay dIIte.•
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Annexure n/.iJ
••........
Concurrent Audit for the JIlonth of December.· 2()lS
Port FoUo Manager: State Dank of India (AMe)
InstaJ1cea where securities ha.e beea mature. & still ahowfnt 111the system as wen as C1UItocUanholcUll,
-seeurlty hme ------ Seeurity -Co4e- - - Face Vahle Ma~Date Fuacl Man_cer's Respollse .
13.75% UP SFC 2007 501004 50,000,000 29-.,Jan...07 We have ~ ad~sed by me Custodian SCB that for "]
12.30% UP SFC 2007 II rSSUE 501006 100,000.000 20-Qct-07 these secunties legal cases are pending forrecovcry.•Therefore. these securities have been kept aspttrt 0Ij
12.50% UP SFC 2009 501008 20,000,000 17-Feb-09. Iholding. . I
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• lrnph.)y~esProvidentt'unu OrYi;:ii ~,,~UCII(PF; EDLI Fund; EPFStaff PFi EPFstaff Pension aind Gratuity Fund)
Concurrent audit report for the month of De~ember 2015
Sr.No.
Audit Obse'7atlons Replies 0' th Auditee
5. UTI AMCLtd.
.) Review of Fund flow vls·'·v', bankaccount:We have revIewed tunds Innow and outflowfrom MIS provided by the Portfolio Manager(PM) and 'ound the same to be In agreementwith the Standard Chartered bank (SCB)statement, except on 19.12.2015 where nodetails pertaining to Innow d runds wereentered In the MIS though an atnounto'Rs.81,54,220/- was reRected In the bankstatement.
b) Review 0'MIS of Custodian:
We were Informed that Standard CharteredBank (the Custodian) provides following MISreports:I. Dally settled trade reportII. Expected Cash Flow fat Non GSec
Securities for next dayiii. Dally Non G See Holding StatementIv. Monthlyl Weekly expected cashnow
• We have verlfled dally settlement reportand found that generally the transactionsare settled within one or two days.
- We have reviewed the expected cash nowstatement and found the same to be Inagreement with the bank statement ornext day.
I
The revlS~ reportsubmitted to e Auditoral well as EPF •
!I
We have reviewed the holding statementreceived from Reserve Bilnk of India-Publle Oebt Office (In respect of G See)and sea (In respect of OChersecurities)and found the same to be In agreementwith the statement provided by the PM.
- Holding Statement as proyIded by thePortfolio Manager II given In Annexure IV(I!)•
• i.
: {
Chandabhoy & J.JS500bhoyChartered Accountants
Remarks as to IInaldlspON' 01 th.t'·,observations ...
Page 15 of 18
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(PF; eou Fund; EPFStaff PF; I!PFstaff Pension a..,d Gratuity Fund)Concurrent audit report for the month of De mber 1015•
Sr.NO.
RemarkJ a. to ftnaldisposal of theob$t""atlons
•r,'e•:l.' '
Audit Ob.ervatlons Replies 01 the Audite_
C) Dally Transactions:
We have verlf1ed dally transactions pertainingto Investments made In various Instrumentsalong with the available market data. Outobservations In COnnection with the above areas under:-
\. Fixed deposits: No "xed deposits werepurchased during the month.
II. Corporate bond.: l'unds are Invested InAM securities reported by CRJS1L/ICAA /CARE. W. were Informed that the fundmaneger c:ollec:ts quotes for the aboveInstNments frOm vartous brokers / soI1ers.The fund maneger's Investment dedslC:lli Isbased on the Instruments offeringoptimum yield. WI venty above dealtransaalons based onc:omparatlveweighted average price and yield reportedon websltes of asE, NSE and FtMMD4
III, Government Securities: Investmentsare made In State Government securitiesbased on price offered on NegotiatedDealing System • Order Matching (NOS-OM). We verlfted above deal transactionswith high, low end weighted average priceand yield of the securities on the eOl'swebsite.
,However, In a particular case It was ExplanatiOn provided inobserved that investment was made at Annexu •••Ul.the \Owest yield, details of the same are :given In Annexure IlL
Iv. CBLO Lending: Funds are generallyInvested at nearby weighted average rateas reported by eClL.
v. CBLO Borrowing: DUling the month PMhas borrowed funds from C8LO. Funds areborrowed ror the pUrc)ose of partlClpatlol'!In primary auction of Governmentsecurities and Corporate bonds. PriorIntimation rot the aforesaid borrowing Inthe specified format was sent to EPFO.
vI. In respect of securities purchased duringthe month, apart from deal tlCkets, wehave verified their racings on eRlSIl/ICJtA/ CAREwebsites.
Further we were Informed by the PortfolioMar\l9fr that none 01 the securitiespurchased 'during the month 'or held bythem are downgraded.
Chanda bhoy &. lassoobhoyCllanered Accountants
I
____-L ~--~------~'----------~------------
Page 16 of ltl
, ...r: '--'1" -.,r+r"r' r·£',.J J--fihrJJ~ ~J~':'d';_cfJ~::tfPiF~rFrFu' 'u; ~u·.i tJ .rrr tJ';',J::U'I'I1' iJ"'ll
Employeos P..-ldOllt FwulelChpDJsatIoacPF; &DLI FluId; EPF Sta1I PI'; BPI' .taaPeaaloa _d Oratait:)" FuadJ
Coac1IJ'I'eatAudit tor the mOllth otDecelllber. 2015
~ort FoUoMaDager: UTIAMC.Lt4.Aaaeaurem
III~~~ when lJi_stmeat Ilu beell IIUlde .t the lowut ,...ld-Marbtdab------------ ...
Date Ibm. or aecadty Amount (Rs., YIeldLaw Bl£h "'etpted Faad M~ger's RespoDu,.t~ld peW • ..., )'I.lel ~
16-Dec-15 a.32p: 001 Stock 2032 Red 158,055,000 8.07 ••07 8.10 8.07 .02Aug2032 The weighted ~ yidd wa.8.0718
which is close to the yield of 8.0701 'ofout trade. Out.ortotal amount traded orRs 16 Crore, un EPFO trade quantumwas Rs 15 Crore (93.75% of tOtalvolume'
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Concurrent :Udlt report for tho month of Dtcember 2015
PART 1 - eXECUTIVE SUMMAR'~I',I
I
" 1
Sr. , • Particulars ,INo.
..I
1. Instances of short receipt of funds [Refer Para (b)- lClCl~RellaQ,cel.v· .2. Securities matured but still renec:ted In the system and cultodlan holding [Refer Para (b) •
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Chanciabhoy &lassoobhoyChartered Accountants
Page 1of 2.1
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•Employees Provldenc rund Organiz ~tjon
(,:o' t< :' )Concurrent audit report for the month of Decel~ber 2015
Sr.No.
Audit Observations
••2. rcrcr SECUIUTl!S PRIMARYDEALERSHIP
UMlTED.
a) Review of Fu.;c..now Y'•..~-v' ••bank account!We have reviewed funds Innow and outftOwffOmHIS provided by the Portfolio Manager (PM) andfound the same to be In agreement wltll theStandard Chartered bank (SCB) statement.
b) Review of MIS of Custodhln:
We were Intonned that Standard Chartered Bank(the Custedl",) provides followingMIS reports:I. Dally settled trade repo;tII. Expected cash Flow for Non GSec
Securltles for next dayAI. Daily Non G See Holdtng ~~t\Y. Monthlyl Weekly expected Cashllow
- We have verified daUy settlement report andfound trutt generally the transactions aresettled within one or two day ••
- We have reviewed the expected cash nowstatement and found the same to be inagreement with the bank statement of nextday.
However, In one Instance we observed shortreceipt of funds, details of whichare given InAnnexure I (A).
- We nave reviewed the holding statementreceived from Reserve Bank 01 Indla- PublicOebt Ortlce (In respect of G See) ancl SCB (Inrespect or other securities) and found thesame to be In agreement with the statementprovided by the PM.
• Holding Statement as provided by thePorttolloManager Is given In Annexur. ~
. (a). _ /'
C) DallyTransac;tlona:
We have venned ~IJy transactlont pertaining toinvestmentS mad. In varIoUS Instruments alongwith the avaIlable matket data. Our obsetVationsIn connec:tlon with the abOVeare as under:-
Replies or th4Audlte.
,Please refer rem_rI<s inAnnexure I (A)i
~:I,II,. III,III,,I
I• ,IIII,II,,,,,,,I
,,
Remarks as toflnal disposal ofthe observations
--~-
Chandabhoy 6 JassoobhoyChartered Accountants
I ,-I t"-
Page6 of 21
e.
Employees Provident Fund Organization(Pensl~n Fund)
Concurrent audit report for the month of D,ecember 2015
Sr.No.
AudIt Observations Remarks as to finaldisposal of theobservatIons
ASSET3. ttEUANCI! CAprr AL '.,MANAGeMENT LTD.
Repn~oftheAuditee
a) ~evlew of 'und now vl.A-vls bank account:
We have reviewed !'unds Innow and outttow fromMIS provided by the PortfOlio Manager andl'oundthe same to be In agreement with the StandardChartered Bank s~tement.
b) RevIew of MIS of CUstodian:
We were Informed that Standard Chartered Bank(the Custodian) provides following MIS repOrtS:
I. Dally settled trade reportII. Expected Cash Flow fot Non GSec
Securities for next dayIll. Dally Non G See Holding StatementIv. Weekly expected cashflow
- We have verified dally settlement report andfound that genera"y the tranSactIons are settledwithin one or two days.
• We have reviewed the expected cash nowstatement and found the same to be inagreement with the bank statement.
However, In few cases we have observed short Please re~ remarks Inreceipt of !'unds, Details of the same are'glven Annexu~•• (I),in Annexure' (8).
- We have reviewed the holding statementreceived from Reserve Bank of India- Public DebtOfftce (In respect of G See) and sca (In respectot other securities) and round the ArM to be Inagreement wltn tne statement provided by thePM, .
- Holding· Statement as provided by the PortfolioManager Is given In Annexure 111 (e).
Chandabhoy a J~ssQObhoyChartered Ace~ntants
.;Page 100'21
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.'Emplo)oeee Pro9fdeat I"tuld OrpJdAtIoa(PeaaIoa •••• d'
Coacarreat Audit for tile IDntll oIDecnabeI', 2015
IastaDees or.bon receipt 01ftulda .'AIlllelaln J
(A)Port FoUo MUUlpr: Icrct SecadtJea PItmaiy DeaJersbJpJ.td.
9981 18·Dec-2015
had Jraaacer's ReltpO•••8eC11dty If••••e AIaouat I AmountIIlIuWa:ttttl pta.) Reeelnd (Ra.,' DJ.«eretlce (RLJI Receipt date
9.25 pc V1ja,. Snk FOR DOlllJun14 Red 18Dec15712285 12,844 71.846
SfAmdardChartered Sank has ea1cuated the Interelt nspet'Ac:tual/360Day Basia when aa thee.suer has pAidthe Interests. per Ac:tual/365DayBaais.hence tMre isa~~ce .
(8) Port FoUo M.a.eer: ReUance capital Asset •••• cement Ltd.
Aatouat ADlOtUlt •Ifame of Secarlty Expected (Ra.' Rec:eiYed (Ra.) DUterellce (Rs.) Receipt dille JI'Iulcl Maaapr's Jhspoase
9.15 ~. Yljaya Snk FDR 001 •13Sej)i4Red 01Dec15734537 197.259 - 196.635 624 I·Dee-20tS~.25 pc VijayaBnk FOR DOl27May14Red 03Dee15· 733237 154,167 152.055 2.112 3-Dee-20159.15 pc VijayaBnk FOR DOlISSep14Red 03DcelS 734543 196,129 195,509 620 3-Dee-20159.25 pc Vijaya Bnk FOR DOl ~28May14Red 04Dcc15733240 154,167 152,055 2.112 4·Dee·20159.15 pc VJjaya Bnk FOR 001I16Sep14Red 04Ded5 734673 198,191 197,564. 627 4-Dec-2015EXpected Cash Ftow as per SeB was tentative and the9.25 pc Vljaya BnkFDRDOI actual amount oflnterest ~d is.con-ect as per29May14Red OSDcc15733243 154,167 ·152,055 2.112 5-Dcc-201Smethodologyadoptedby Vijaya Bank.' As SUCh. there is9.15 pe VJjaya Bnk FOR DOl no dilrerencefbalanc:e amount rec:d\"able.178ep14Red OSOeclS734781 197,854 197,234 620 ~Dee-2015 -9.15 peVija,. Bnk FOR001I9SepJ4 Red 01DeclS734912 198,187 197,594 593 1-Dec-2015__ _ _ _ _ L. ~_ _ _••- - •• •• •• A. •• ...·;.'D '~.~.,.~:.!':--:~.':!:-:~-.• -.~ •• ~.-. -'-~J.~,~,.Jt~•._.~
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9.15 pc Vljaya Bnk F:DR001 .2OSep14 Red 08Dec15 734915 198 197,5741 6261 8-Dec-2Q.l9.15 pc Vljaya Snit F:DR001
197,5941.
22Sep14 Red IODec15 734918 198;191 5971 IO-Dec-201
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Employees Provident Fund Organization(Pension Fund)
Concurrent audit report for the month of Dec,mber 2015
a) Review or fund now vlt-l-vl. bank account':
We have reviewed funds Inflow and outflow from No CommentsMIS provided by the PM and found the same to be required.In aoreement with the bank statements Of StandII'dChartered Il581 (Security 5el'Vice Branch).
Sr.No.
Audit Observations
STATE BANK OF INDIA ('AL4C)
b) Review -or MIS or Cu.todlaiuWe were Informed that Standard Chartered Bank(the Custodia!) provides following MIS reports~I. Dally sf!ttled trade reportII. Expected Cash Flow for Non GSec Securities
tor next dayIii. Dally Non G See HoldIng StatementIv. Weekly expected Cashtlow
••
Replies of theAudite~
Remarks as tofinal disposal 01the observations
4.
• We have verified dally settlement report· and No Commentsfound that generally the transactions are required.settled within one or two days.
- We have revIewed the expected cash now No Commentsstatement and round the same to be In required.aoreement with the bank statement.
~ We have reviewed the holding statementreceived from ROSeI'Ve 8ank of Ind'a~ PublicDebt OffICe (In respect of G See) and sca (Inrespect of other securities) and found the sameto be In agreement with the statement provtdedby the PM, except on an 0CQISI0n, details ofwhich are given below:
Name of 7.5"'-GOI 2034 7.40"'-Security GOVT.5TOCK
2035Holdlng 1,29,17,10,000 5,80,98,55,000a. perRBtIA\Holding 7,10,15,65,000 .a. per~BI EPPO8)Olff.renc (5,80,98,55,000) 5,80,98,55,000• (A-B)
However, it was observed that In the month orNovember 2015, security ·7.~ GOVT.STOCK2035' correctly .renec:ted a holding of5,80,98,55,000 in the system.
In few tales, securities have been alreadymatured but stili shown In Holding statement ofPM as welt as in Custodian holding statement.Details of the same are !liven Annexure II.
There was nqdifference as:SUCh inthe two holdl~reportS. However, theholding dlrfe,.nce'-appe~du~toupdating wl'QI'Ig(SIN,toroone secutlty,whlc:hwas rectlfledl on thefollowing day.
II
Explanation: providedIn Ann.xu"18 U.
II,
Chandabhoy 81Jas$OObtloyChartered Accoun~ants
Page 14 of 21
'.- .... ,.
Employee. ProvIdent Fune! OrpaluUOD(Pollllfon lI'mIdJ
..<,
Concurrent AudIt ror the month or Decemher, 2015
Port FoUo Manager: State Bank or bulfa (AMe,Annexure
Instances where secuntles have been maturec! & atJIl ahowfnc tn the .,..tea a. weU•• cuetocUan bolcUnC
'12.30% UP SFC 2007 II rssuE, 5010061 100,000,000 I 2o.Oct-071-·_ •••. securities JegEt!~~ses are pending ro~recovery. . Therefore. these secunttes have been kept as part
501008 20,000.00012.50% UP SFC 2009
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" Employees Provident Fund Organization(PF; EOLI Fundi EPPStaff PPi EPFstaff Pension and Gratuity Fund)
Concurrent audit report for the month of January 2016
" ."
PART I - EXECUTIVE SUMMARY
Sr. ParticularsNo.
1. Instances of non-receipt! delay and short In receipt of fund (Refer Para (b)· HSBe, ICIer,
R.eliance, SBI)
2. Securities matured but stili reflected In the system and custodian holding [Refer Para (b) -
SBI)
••
........,..--,...--".-,-,------_. --....,......_. _.-'---"'-'tg'.Chandi\bhoy Po JaSSOObMyChartered AcCountants
Page l or 19
':1 Employees Provident Fund Organization! (PF; EDLl Fund; EPFStaff PFi EPFstaff Pension and Gratuity Fund)
Concurrent audit report for the month of January 2016
•Sr.No.
Replies of theAuditee
Remarks as toflnal disposal ofthe observations
Audit Observations
.1. HSBC ASSET MANAGEMENT (INDIA)
PVT. LTD.
a) Review of Fund flow vis-a-vis bankaccount;We have reviewed funds inflow and outflow We are In confirmationfrom MIS provided by the PortfOlio Manager with the observation.(PM) and found the same to be in agreementwith the Standard Char.tered bank (SCe)statement.
b) Review of MIS 01Custodian:
We were Informed that Standard Chartered We are In conllrmatlonBank (the Custodian) provides followino MIS with the observatIon.reports:I. Dally settled trade reportii. Expected. Cash Flow for Non GSee
Securities for next dayiil. Daily Non G See Holding Statementiv. fvlonthly/ Weekly expected cashnow
- We have verified daily settlement report We' are In confirmationand found that generally the transactions with the observation.are settled within one or two dayS.
However. In tew cases, we observed non Please refer to ourreceipt of tunds,detalls of which are glvenresP,Onse In Annexure IIn Annexure I (Ai. (A).
- We have reviewed the holding statement We are in confirmationreceived from Reserve Bank of India- PubliC with the observation.Debt Office (in respect of G Sec) and sea(In respect 01 other securities) and found
l the sam~ to be In agreement with the
___________ s_ta_te_m__en_t_p_rn_v_i-de_d__bY__th_e_P_H_. ~~ ~ __ ~ __ ---- -- __ ---
•
• We have reviewed the expected cash now We are In confirmationstatement and roun~ the same to be in with the observation.agreement with the bank statement of nextday. •
e.
• Employees ProvIdent Fund Organization(PF; EDU Fund; EPF Staff PFi EPPstaff Pension and Gratuity Fund)
Concurrent audit report for the month of January 2016
•
Sr.No.
2.
Please refer to ourresponse In Annexure10(B).
l(lCl SECURlTlES PRIMARY DEALERSHIPUMITED.
Audit Observations Replies of theAuditee
Remarks as tofinal disposal ofthe observations
al Review of Fund flow v"'~-v1s bank accounbWe have reviewed funds Inflow and outflow fromMIS provided by the Portfoflo Manager (PM) andfound the same to be In agreement with theStandard Chartered bank (SCB) statement.
b) Review 01 MIS of Custodian:
We were Informed that Standard CharteredBank (the Custodian) provides following MISreports: -I. Daily settled trade report .Ii. Expected Cash Flow for Non GSee
Securities for next dayill. Daily Non G See Holding StatementIv. Monthly/ Weekly expected Cashflow
- We have verified daily settlement report andfound that generally the transactions aresettled within one or two days.
• We have reviewed the expected caSh flowstatement and found the same to be Inagreement with the bank statement of nextday_
However. In few cases we observed nonreceipt. details 01 which are given InAnnexure 1 (B).
- We have reviewed the holding statementreceived from Reserve Bank 01 India- PublicDebt Office (in respeet 01 G Sec;) and SCB(in respect 01 other securities) and foundthe same to be In ~t with the. statement provided by the PM•
••
Chi.'lndabhoy& JasSOObhoyChi'lrte~ed Accountan·ts·
. PC1{Jl! «5 at t'
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Employees Provident FundOrganization(PF; EDLl Fund; EPFStaff PFi EPFstaff Pension and Gratuity Fund)
Concurrent audit report for the month of January 2016
-----T----------~--~--.----~~------------~--~--~--~~----~~----~-------Audit Observations Replies of the Remar~ as toAudltee .f1naldisposal of
the obsetvatlons_
Sr.No.
3. REUANce CAPITAL ASSeT MANAGEMENTLTO.:
We have reviewed the expected cash flowstatement and found the same to bti inagreement with the bank. statement.
HoweVer, In few cases we have c;>bservednon Please refer remarks Inreceipt and short receipt of funds. Details of the Annexure I (C).same are given in Annexur.! (e).
a) Review of Fund now vls-";"vls bank account:We have reviewed fundslnnow and outflow fromMIS provided by the Portfolio Manager (PM) andfound the same to be In agreement with theStandard Chartered bank (SC8) statement.
b) Review of MIS 'rom Custodian:
We were Inrormed that Standard Chartered. Bank(the Custodian) provides following MIS reports:
1. Dally settled trade reportiI. Expected Cash Flow for. Non GSee Securities
for next dayIII. Dally Non G See Holding StatementIv. Weekly expected Cash now
- We have verified daily settlement report andfound that generally the transactions are'settled within one or two days.
- We. have reviewed the holding statementreceived from Reserve Bank of India- Public:Debt Office (In respect 01 G See) and sce (Inrespect. of other securities) and found the sameto be In agreement with the statement providedby the PM, except on one occasion detailSof whicharegivenbelow:
The dirfcrencc was on account Of purchase orsecurity on 291ft January, 2016, whiCh wassubsequently settled on the next working dayi.e. 1<I February, 20 iG.__..__~.L.~._~ ~ ..,-- ,- ....J _
Name of the 8.24'Mt GOVT '.ll'Mt GOVTSecutltv STOCK - 10- srOCK • 22-Jun-
Nov·20)) 2045 •
Holding al 8,60,00,00,000 2,50,00,00,000por ReIHolding al 9,60.00,00,000 3,50,00,00,000pot RelianceEPFODUt.ronce 1,00,00,00,000 t ,00,00,00,000
••
Chandabhoy & Jassoobnov~har.ter'cd Accountantc;
',-; ." " ../.::SI.·
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• Employees Provident Fund Organization(PFi EDLl Fund; EPFStaff PFi EPFstaff Pension and Gratuity Fund)
Concurrent audit report for the month of lanuary '2016
•I
I
Explanation provided in,Annexur. 11.
Sr. . .Audit ObservationsNo. •
Replies of theAuditee
Remarks as toft~al disposal ofthe obserVations
4. STATE BANK OF INDIA (AMC)
a) Review ot Fund now vis-A-vis bank account:
We have reviewed funds innow and outflow from No Comments required.MIS provided by the PM and found the same to beIn agreemenr with the bank statements ofStandard Chartered & S6t (Security ServiceBranch).
b) Review 01 MIS of Custodian:
We were Informed that Standard Chartered Bank(the Custodian) provides following MIS r8P0tt$:I. Dally settled trade reportIi. expected Cash Flow for Non GSee Securitlts
for next dayIII. Dally Non G See Holding StatementI'll, Weekly expected Cashnow
No Comments required.
• We have verified dally settlement report andfound that generally the transactions aresettled within onc or two days.
No Comments required.
e.
• We have reviewed the expected cash nowstatement and found the same, to be inagreement with the bank statement.
v However, In few eases we have Observed nonreceipt. delay In receipt and short receIPt offunds. DetailS 01 the same· are given in'Anne)(ure 1 (D).
In few cases, securities have been alreadymatured bUt stili shown In Holding statementof PM as well as In Custodian holdingstatement; DetailS of the same are given inAnnexure 11•
Explanation provided InAnnexure I (D).
i:h-a-ndiio-hOY" gj-Ja$'li<Soon6YChartered ACcountants
>-.\~,)a\ .\ "\"\::"\~,,,W' \laL·-\W.- .,.1,"1 \I.L~ l.I da11:m,teyn_~'~irl hftj'~f~tkii'{', 7':-'" ." ' ..J '., ' •
J.J JJ JJ iLl JJ J.Jd.1 &1 .1.1 ,~1 I~I J.I ,LIJ.l J.J 11.1
~ EDU FIuI&4tEI'J'Staff"" EPJ' lItalf""' ••••••• Ontttdtr....,
CoaCl'lll'Nflt .A•• 1t '01' tlte •••• tJa.,.J-WW7. 2016
bu_. 0'._ •••••pt/ •• I••,.•••••••ort Ift•••••pt or •••••• An •• -:vre I
tAlportroDoJI_apn JlSBC"-t •••••••••• t fJD411at M. J.t.
X.m. 0'Seetutt)' AIn_t Reeeiptnur<ti'eaee, lteftlpt •• t. hal 1d•• -c:er"a ~ ••P•., Date z.t_e4ots..l Amouat
I·Jun-l~7.SSpc PunjAb Financilll Corporation Sr
8.923 8,923 !'CotreceivedI HCb Red OlJun20J6 , Tbl. instrvtne1t fa a leper holdin& "'hieh ••.•• tran.~ to H~BC
ANC. As ~ by the CU1l1odi1U1. StAndard ChIII1rn!d Banlc. tMl.Jun·l~
7.SSpc Punjab FinAttcial CorporationSr 1.300,000 1.300.000 !'Cotm:rivtd . iatuer h••• inrormed that on ItCCOUntor fiMnciItt ClUneh: it ~Id notI ffCb Red OIJuft2016 ~mit intereIt pa)"lftmt. ~ 'S!IUff i.unable to ~nn th<>1'l'Yiftr.'dpay dat~. Custody ill ro-n...in& up with the issuer for the intfleIIt
1:8Spc PunjAb P'inIIncilll Corporation Sr 1.300,000 1.300.000 Notm:eMd paymeltt.l.Jun·IS 1 Neb Red OlJun2016-. ---
fa) Port Toll. IIIlIftac-rt ICICI 8eetatt'" I'rhDuf DnJeraJd, J.t ••
•
Pa., •••t. 1If•••• r1ee1n1t7 Amnat Receipt Dtffe_ R-Ipt'ato ••••• 111_•• ,..• .....,.. ••Elnect •• tJta.1 Amo•••t
INIHr dill '!IGl fill)' tM internl "')'ment due to fillinciat cnlflCh,
31-Dee·13 9.32pc PStDC Sr 2006-1 "'eB Red 93.200 93,200 Not~ l-.et ill unable to t:OfIrll"lll the moiled JIll,. dllt~. ISEe PO .Ion, witt29HOY2016 the custody (SC8) a~ rollowinc up ,,",h the I•• uer. '11M! _me h ••
been communicated to £PFO.
lawer did not JIll)' dw"uenotlt ",,,,,,ent dut' to ftntMitll nUMh.
JI-Dec-l37.Spc PSiDC Sr 2005·' NeB Red 163.800 163,800 Not rectMd 1•• 1Ift' ill una~ to t:OfIfinn the reviled pity dat4!. ISEe POAJonI! ••ith26Jan2016 the cutltody ISCBI ••~ (qJ1owinlt up with the 18I\m'. ~ _1M hIt.. bftn comntUnicated to EPFO .
'ewer did not,JIII3' ttle "'teftll1 ",)-menl due to llnincial crunch,
26-.1lIn·1-4 1.81"= PSIOC Sr 2005-1 NCB Red 3.500 3.500 Not~ IlI8IIer ls unable to confirm the rniBed ,.,.dllie. ISEe PO alon!! ••ith26Jan2016 the cilltody ISCBlaR' rollowinC up with the lseuer. ~ Mme has
been commumc:.ted to £PFO.
. 1tlllller did ""'. ",y the intt'r\'8t paymml dw to finincial crunch .
26-J •.n·l~7.8pc !'SIDeSr 2005-1 NCB Red 630,000 630.000 Not~iwd lauer ls UMble to confll'll'l the reYiIIed ,., date. ISEe PO aJone •.;th26Jan2016 thecuat«ly (SCBla~ rollo-.;nl up with the IMUcr. Tbe 1Ulmeha.
been communicated to EPPO.
Jlatlertlld "'" pay the inteftll1 pafnUmt d~ to linindat crunch.
31-Dec-t4 9_32pc PSIDC Sr 2006·1 NeB Red 93.200 93.200 'Not rec:eiwd lsaver lsUMb~ to conflrm thereYtllftt JIIIY datt. IS£(: 1"0 alone ",Ih291'fo¥2O16 the cUIIIOl!y(SCBJ are foIIowin& ulJ ••.•th !he 11ISIIff. 11te _ me hili
been COIftIftunicated 10 EPPO.
I•• ver cUdnot pay !he inten!st payment due to rJninciaI crunch.
31-Dee-147.8pc PStDe Sr 2005-1 "'CB Red 1l~.660 - 11~.660 Not received ' •• ver i.uneble to conlirm"'~ revised JIIIY datto lSEC PO Iltonll:"';lh26Ja ••2016 thecuBt«fy (SCB) a~ (ofkl,.\ing ul' 'fIith the lnuer. The Mille Itn
beert c:omlftunieatedto £PFo .
'sillier did not pay the intete8t pttyment dft to ftninc:ial ClUflCh.l.!~ ?S\Ot. Sf '1005-\0 Red 3.500 Isauer i.unable to confirm the rt:'Iiaed pay dat4!. ISEC PO alont with
26-Jlln-15 3,500 - "01 recei¥ed, I26Jaft20J6 he custody ISCBJ a~ rollowine up With the lauer. 1l!e •• 1M lilta
beert communicated to EPFO..-
•
r :.lal .L'J1, .
0\
'f~,.~"T"'~,."~'i'7 •. .,.-"''' ~'T"'''~-.-? .•• _ •. ,-,~~~ 7 f 'f T 1" ,. f f l' ~ l' "f , ~ ~ ~ " y , • H· , co T • ~ ,. , "" • , , ~ r ' • • , ,
.-- ~ ••.••.•••••••.•••••••••.•.•• e·. e.••••• e1 ••
• •. ~ •••.•• ,e ••• ,•••. , .J••' , . , , . , , . , , , .. , , , , . ' : ;, , . ,.-:', -" ::-. , . ,';', , , .: .. ,-. , , , .: , . ~':', , . -< , . .: , ..
s , ,',>'." ~;"'·jl.·..• 'JItIUff did IIIIt ,., tM inferellt pllyII14!tttdue to fil'Iincial Cl'Vnch.'IIIIVnl••••••b1e Ilteanfhm the ~ p8J", .SEe PO alont ";11\:hecustOd,.19C1t are fon-inc up with lhe '.v.r. nw ""me hasbeen COIIIlJlunieatH to £Pm,
:f6-J~ i$I1.8PC PSfDCSf 2005-1 ffC8 Red, .' !lWftft20 16 630.000 630,000 l'Io,~
29.Hcw.}4J1U2pe PSIDC Sr 2006-1 NC8 Red29fifo¥2O J6 300.000
I•• llef did not JNI:!'the Int~ pIIY1JIft\I due to finindal aunt"300 000 t .NOI'm:eIwd 1'__ is unebtt. to eanflnn tile reoritIed pII! dati!, !SEe PO alan!! W1t11
• J.. tMeustodyCSCBtare fotlowintup..-TIh t~ ,•• u~. nw IIIIIM MS'-'t eoftIJllvtrieated 10 EPFO.
29-I'IOY.'519,32pc PSIDC Sr 2006-1 NeB Red29"O¥2Ol6
300,000 I 1\101 ~
'•• uerdid not PI'Y the inf~ JI'Iymefttdue 10 rmincial crunch."•• - •• \lnllble to nJI'Innn .the~ JMI! date. !SEe PO alorlc ,..,ththe cllatody CSt!!) are foIbo1raC up with tile 'seuer. nw __ hll.been _ •• \lnbted 10 EJ"IIO.
300,000
J I.Dec- J SI9-.32pcPSlDC Sr 2006-1 NeB Red~"ov2016
93.200 93.200'1_ did not PI,. tM inlen!lt paymenttlw to rmiMial crunch.
Net ~ C"unabte to ceftfIrm lhe J'\'\IUIed ,.,. tb'e. rSECPO alon& withthe C\ItItodJfCSCB,are rotJooo.-irI.up with .lIto 'nile!'. Tbt _1M n.s.
~t •. ~PPO· .
31.Dec_1SI7.8pc PSIDC Sr 2005-11Ql Red26Jan2016 65,520 65.5201 Not rteeMd
'nuer did JIOt ,., tile interest Jlltyftlml due 10 linincial Cl'V1IC:h.
I•• ueril unable 10 conflmt the ftVi-r pay dat~. IS£<: PO.1Im& withtile eulllOdyf8C81 are ~-inI ul' with Ih~ lnuer. Thf _1M hilsbMft CtIIft1ItU1IicaIH 10 £fIFO. •
26-.1.n.16 ,7.8pc PSIDCSr2005-1 NCBRed26Jan2016 8410,000 ~o.ceetNot-'-'
'awr ctid not JIIIY the fntereat payment clw •• ~I crunch.la.uer fa U1'iIlWeto conrmn the rewfIIed pay cta~. 'SEe PO alone withthe ~ fSCB)a •• toIIoainc up II'tth tile ,_. ~ _me •••.•been eomtnlhlieal..t to EPro.
f_ Ifid not JIlt!" the int.reat pa}"lM1lt tlw to flniMiel rrunch.fnuer ta 1IftIIb1e10 eonrlnft tM I'I!¥itIedpII)' d.tl!. !SEe PO .Ionll wi1hthe c:vatody (SCSI It!'\!follvwinaII" ..-ith tM Issuer. ~ "1M hII••been COInmlltlk.ted to F;I'FO.
26..1.,,-16 17.8pc PSIOC Sr 2005-1 Nee Red26Jan2016 ".667 ".6671 Hot receMd
reI Port FoUo lIluspn a.u __ Capital Aaet __ • __ t w..
It.me or I!feetutty ••••••••t Receipt mnareto_ a_Ipt4.te ,.... Jf_Cft"a ••• ,.....Pay Data .~"'lR!J. Amoant
9.0Spc PSfDC NeB DOt J7Sep09 Red 108,600 108.600 Not~m, ICrip fa pIIrt 0( the Icpcy ~fiG handed ~ to ReAMIlt tile
3O-Sep-1" . time of' receipt of'1he manctate in H<WellllIer 20 II. 'The matlfT of' no"16Scp2019receipt or internt h••• !relld,. been •• !ten up With lht-comJ'llny.The re,,1y recehoecI'""" the eoftIJ'4HIt to MIl' a.ttmt anct mnindffa
9.OSpc PSJDC l'ICBDOl 11Sep09 Red.tatH chat due to fINIncilll crunch tMr 11ft _ able to Pl'Y the
3O-Sep-15 108.600 108.600 ffOI received inter1!8t at JlftllPnt. Tbe Mid reply haa ar. been aent to EPf'O few16S1!p20t9 . . their ilJr-alion and _Itine Iid~ Gft runher _fill! or actiort.
Elcpccted Caah F10w •• ~ SCS _. tenlatiw and tile actual
21·Oct·IS8.15pc HPP'C NeB Sr VI DOl 21Apr06 21,935 21.875 60 12...1.n,16 amount of intereat received '""" the iaauer is correCt. •••••••...-.elireRed 2JApr20J6 followfns vp with inver tor inte'l'Hf on deiay..t J'IIIY1Mftt
--•.-' -- •• •• ..•..•'....
,WI' •• '
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~:JIJlj~P.JI~III~"~''')itlJJ;·~~:;M;u.;~~~~·:iJ:,·-1JJ,J .t.}. ,JJ JJ .~ ,y JJ Ja' tal .at tit' ,1,., J....~.. .' "'~l"',,':'., -i: if' :':,€~11'~tL':.r' . .. ;.:
•
.·C·
hy o.1e 8eeIttfty ".-~ bHIpt Dn1en,," •...,.""'. hII4 •••• 1'"".~II1tII.I Ant_t
.It. adWfatd by evatoit.ft SCD thllt en account or ~ CFUnd, th: ~1.25% Oed •••• ri M.tIIt1Jwada Bond S,..
15·•.lIln·12 1 r,2S0 . JJ,2SO Not Iftf!'hoed ~ eOIlJd not remir ~ paymf'ftt r.suer II.aMbit \0 looftnr.',." y:~n.tBRed 15Jan13
tfle ft'I'I-t pay dale.
r.spe psrDC Sr 2005-IHCB Red As,.dv(toetI by C'uatodian sca thll' en IICC'DUlltof ftnaftC:iel ctuftch Ih3 I· Dec· 13 54.600 . 54~GOO I'fotreceiwd fllluer eau" not fttIIft fn1efHt permmt 1_.uM\)1fo '0 ~nlin!i26J.n20.6 tM ft\'fIIed ..,. date.
. .7.lIpe PS1DCSr 2005-1 NeD Red !IJ ad1Iiw.d by cvatollian SCB.that on __ '" or lillllncial ctutlch Ihl
26...1an-14 1.167 - 1.167· Hot I'r:CeiYed . i••ver eauld not remit intereat pyment. luuer is unabk to C'iinlinn26Jan2016tlle ~ JIIIYdale.
7.ape PSfDC Sf 2005-. HC8 RedAlalICMaed by cV.Modiall SCB that an lICCOU"1or IiNlJlriaI crunch Ihl
26-.1an-14 2tO.ooo- - 210.000 Mot rteei¥ed imrerceuld not remit int~".,.,...eru hI~ is ullable 10 ccml'irm26Ja1l2016 itM ..-ed.JI8Ydate. , . .
C).O. PSJDC NCB 2nd ~r DOAM IICMted by eustoditln SC8d.1t OJ; account of ftMllriti c"'!It'lt 1M
31·Mar-14 325.800 325.800 NOt I'K'rived !teuer coold not remit interest ".""eru I••~ •• unable to ~nf'inrl17P'cbll Red 16P'cb21 the rnieed pay date.
A, adviaed Iw tulltlldiltn SCB dull on IIftOUftI or ftnancial Ctu!lt'tt=1JI-Mar-J4 9:32pc:PSIDC NCB Jat Sr DOA 24"p09 792.200 - 792.200 Notremved !teller eoulcl'not remit Inlftftl payment l..uer ill unitbIP to remr"", .
R~ 23AprJ9 therm.ed .,.,. date.' . I
As achiM!d b)' tuatocIiIln sce thllt en fta:ountof flnllneilll crundl t~3O-.1"n-l04 9.43pe PSIDC Sr 2009·11 MC8 Red 330.050 " 330.050 Not~ lall« eauld not mait in~st ,.,.ment lauer ~ llna~ to confi""
O!Uv12019 - - the !Wiw.d I"'!' date.
9.05pc: PSfDC forCSDOl 17Sep09 RedAs ad1Ii••.•••'" tuftldiltn sca thllt on _vnt of (lftaneill! crunch 1M
3t).Sep-14 27.150 27.150 Notrecmnl luller' eou'" IIDI MIIit inteftllt pIIY'Ifteftt INWr II uMbho to COtIfimtI&Sep2019 \". .....•,.,.,..
As adriaed '" tuatodlltn sca tlutt en _. of tinandal crunch 1MI-~-I"
9.32pe Pulljab rift Corp Sr trlNCS OOA 4.651 4.6.57 1Iot recriYed i__ 1eInot remit inletf'llt pII,.mm1 1_ ia Umthle to confirmOJDee06 Red 010«t6 - the reYiIIed pay date.
9.32pe Pu.b 8t .1Id oe. UHCB A. ad¥iaed '" eullOdilln SCB that on IICCW"I of fi_ndal crunch thf'31-Dec-I" 251.640 251.640 rtotrem-i iaauer .uld not remit Inl~ paymenl ,UU« i.unable to conlinn
DOA8PebOT Pa~ 7P'tb20IS Omt the ft\'Iaed pay date.
As,adfttled by cuModilln SCB that on attount or finandal Ctulld, t~
31·Dec-J47.ape PSIDC Sr 2005-1 NeB Red 38.220 . 38.220 NotreecMcl iMuer cOuld not remit int~ PIIymentlllSucr i.un.llk ftt confirm26J02016 the ~ pey"ate.
M adYI8Id by cuatollian SCD tlNtt "" account of Ijy'"nrial Cf'Ul'ICh 1M26-Jan-15
7.8pe PSfDC Sr 2005-1 I'lC8 Red 1.167 - 1.167 NOI~ '-r eauld not remit fnlenm pIIyTllmt lsaucr is unable to conlinn26Jlln2016 the MlleecI pay date:
1:Spe PStDC Sr 2005-1 "'CD RedA. adviaed Iw cuatodian sea Ihllt on aecaunl of fina!1dlll crum:h IN
26-Jan-J5 . 210.000 - 210.000 1'101received lasver could "not remit intereoat ptlymellt I•• Uer is unllhle to confinn·26Jan20J6 the rc"-f pay date.
A.IId~eecI by cvatollian SCD th •• .", _I IIIfinancial Ctunch tIM-
7-Feb-IS 9.32pe "-'njAb bl lnet Dc¥ UrfCB 1.859 . 7.859 Hot reeehecI jsauer eauld not remit intereat plyIfte1'I.t 1__ is un.bIe 10 confirmDOA8Fcb07,.rtRed 7Fcb201S DInt tM M'iaed ".,. date .
". acM.ed by cvatolliAn SeD tha1 on IlCCIIUnt or ""aneilll cruncb ttlt-
1-l"e1>-159.32pc Punjab St Ind Oe¥ UHCB 810.000 - 810.000 Not m:eiYed issuer CIOUIdnot ~it mtel'Ht pIlY1M'ftt f..uer is unable to _finD.DOMFeb0'7 PattRecl7Feb201S DInt ~ !Willed JIll), dlUe.
~ IIdYiIed by CUlOdian sca thaI on .-nt of "".neiII! t:nInc~ tbt-9.32pc PSIOC NeB 1st Sr OOA 24Ap09 792.'00 192.200 Het~i __ coulel not remit intemlt "')'men, ' •• ucr is unable to _linn .3.,·M.t-,5 Red 23AprJ9 the N¥fIed pay dIIte .- - ....•. ....• ,. -.r ..•. _ •. I!J/F>' .• lit. €f;", ~ • .-. • ••.• • •.•.••• J••
~ ~. " " •. .,.. •• ~ .• ~ .• ,. !' •• -v •. ., ..- •• " 1! T ." "f .• '" ~ •. ~ "1' ., ., " f' ..•. " ~ •
~J _~
~~"~."'1'T.'''I''-T'''''-l'·'''f·l'"f'-'.'t'rf''f''.l''~'
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~~~;r~~~1flt~tl;."r~~t:iT~r:-rtrrJ.trr-:rl7."rcrl7r~rr.7.ij:Tr;rc~g-ArM .JaJ J4.1 .w ., ~ ••1 .at t.~I':·""-;?~'."~,, '~",~> .~!-~~~.':~~~:::1I.:~.:,'~iIII)l~:"~::'1J!l'~t~'-fJ~:":·lIV<~IM',~)"II-::-::.·.;'P;'~':;:I!I"'~.~••.~.>.P.i! ~.'~.py!~~J5,..
• ., .' ••• - ••• • •••••••••.• f •• ,o , • , , , , • , • , , , •• , •• , ••• ; •• , .~:c.-• = ,-~ , •• .: •• _ ~'. , • ;:", T .: •••• ~' •••• -:' ••• •• • , , :: , , • ~. -::» ~ ..J .~)
: . ': -," -. '.t)spe psrDC prelUI'ICI 8, DOA " :. '. A. """""by ~ sea ,""te'll IImt\Int of AnII"ciIIl c_" ttw~Jt.M •••• JS t7tebtl Red J6Fel121 325.aoo. 325.800 fIUt~1Buer cottfll '"" n:mh mtt'mll JIIIyment Iwuft is UII"~ toeommft
die ~ I'll" d.le.1-t'''3pc I'SIDC' Sf' 2009.tI NeB~. . . AI _wiled bJ' eustodfltn SCB tMten IlOtOIInl of linanMl mlnth the
3l).Jun·15. 09JuJ2019 330.050· 330.050 Not ftftfwod -- _III IIGt_it mle'1'ftt III'~ l-.r i.unable.toconlinn~reriwd ,.,. it.te.
9.05pe I'SIDC KCB DOl 115ep09 Red ,.. e4toient by n,lMOdilt" SCBthat .ft llCeounl of IiI'l.uw»1 cruncl'l IhlO3O-Sep.ISI6Sep20l9 ., 21.150 21.150 I'fot reeeiwd IIINerC'II!Ildnouemil intrlftl payment I•• ued. unaIM to confirm
:' . 1M~ III'Ydllte.
.' ~~~pcPunjab Fin Corp UNCOSrll COA . ~e4~ by culltodiii~ sce IMf on IIttountorr",.IIti.lcnm.:h 1MJO.Sep-I~. ' 30Sep06 Red30SeJ'16 11.000 17,000 Not receMed IMUft'CClUIdnot mitt! mf~lftt JIIlymenl 'Isauer it vnablf' 10confirm
t1w.nM8ed .JMIY date.
.. . '., a.5J'C Punjab Pin Corp UICCOSrlI DOA . AalldYiIlfd ~ eUa1odla~SCD th.t OIIII~t orfinanrial crunch Itw»se".. IS ~lfed3OSepJ6 100.000· 100.000 Not~ ftmieT ~Id not_it mtereat paymftU JlltlUft'iti unable to tonfinn
. - ..- the HMeed JIll, d.~~ .
83.405 l-01:t.lS ~ a~- .,y 1Ift-cu.tOdilin -scs ~O,ncnuftt-or-aplit., Mdltra.. _ _1Oc .IS 8.74pc API'bw !'inSr1/2010Opt 8 NC8 218500 3C)024 P"nIdfthatate.the ~mt rr-Telanp" • .,.,mtlM1lt iUWIIItN.• t OOA 15","10 Red 15,.,0v22 • •
91.071 5-Ott. U As adYitetf by tM CUlItodiftn seD ,On 8tCOUftt OfapIit 01 Andh,.I"radesh atate, the ptlyrMftt fromTelAnpn. ~mm~1 i••••:Iri~-
-- 1~t.1S All e4vised br 1M cuStodian SCB.~ ttmlUn, or IIplit ofMdhraJ Ot JS 9.97 APPawFin Sri 2011 Opt B HC8 498500 201.693 89 032 ,......,.~; dIe~ hm Telll""'.~~ i••_it~• ,. DOA 3OJII,,12 Red 30.1a",4 ' •
• -'0 207.775 S-Oct~IS ~ ad"'-J b.r '''HuStad.1t SCB ,O.Hlccount of apUtof-Andltl'llPradn1I .tete. IIIl"~nt ,""" T,"",npna fjDfemment 1.-._il~
8.1SpcHPFC NeB Sr VI DOI2IApr()6 . . .2J·0et.JS Red2 IApr20 16 21.935 21.815 60 l2 ..•••n·fa M IIM_ byeuatodlAnleI Ihll' 'hi m.1\oftt I"""'ftt .1111«1"""with. ckllty. Is CtJf"r'eCt•• per the COUP"' rate on hal' ,,"~. b•••la.
).Dee-IS 9.32pc Punjllb!'in Corp Sf JfJ "CB DOA 4.651 • 4.657 Not~ On aeeouttt orrmanciltl cn",d, the inver rould not remit in'~rHtOlDee06 Red OJDeeJ6 peymmt lnuer I.un.ble to cnnfinn die I'e'Ifted 1'«1dllte.
J .Dee.IS 9.32pc PunjAb Fin eo", Sr an IfC8 DOA 60.000 • 60.000 Hot ~ On account of financial crunch the i••uer roulel not l1IftIit int~~ ••OIDtc:06 Red01Deel6 pIIymeftt rauer-is UMWc toc:onlitm tM ~ pay date.
31.Dee.15 9..npc PUnJab St'1'ICI [)eov tlNCD 176.148 176.148 !tot receiYedOn Aeeouttt oIfiMncial minch 1M fUUercould not I'ftftil interestOOA8Fcb07 PIlrtRed 1Feb20 IS Omt ~ '..,Uff is UMble 10confirm the ~8ed ",,)' d.te.
31.Dcc-15 7.Spc PSIDC Sr 2005-1 HC8 Red 2J.8"O • . 21.840 "'Of.~ OnaCCOllntofrmanciltlcrunelt me iutH'rcould.not ~mit int~n:sr26J.ft2016 JlIIY!IIftH Jauef Is vnllble tocenfitm tM.mriwed ,.,. ble.
Aa ~ by cu.todi.n !CB dI.t pa,. datt __ • Saturd.,. .••.hic:h ia16...J.n.16 9. ,4pc UCHoullin&F'inanee ffCD 18..••an· 16 _.-'tin, day for i••uer lienee the payment _. KeOrdinZJy
DOAI6J.nOS Red 16Jan20UI DMTLOA 1.371.000 1,311.000 m"OftIleltt ~day.aperthenorm .
192.185 J ..••• n- 16 AlecMIed by the custOdian sca .On account of sptit of Antfhra9.5 APPOWERf'J" SERI NCO 478904 ' 88.739 PrIIdeslt .blte. d~ JIIlymem (rom Telftnpna pemment is •••• iIH.
1.Jan·16 DOA08JUNl2. RED O&JUN22 •191.980 1•••• 16 A.1Idmoed bythe c\JlItodian SCB .On aecoIint of split or Andhra
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26-.1 ••11-16 7.8pc PSIDC Sf 2OO5-t NCDRed 280.000 !'lilt tfteIwd On ~ fit IImmciaJ CnlMh tM t~ tould not remit.ln~rcst2CtJan2016 280.000 ~t lMUet is uMble to conflml tM ret'ieedpay d.~_ :
26-.1an·16 7.8pe PSlDC Sr 2005-1 NeB Red 1.556 Hot~ On IleCl'Wnl or financ:i41Cnlftth tMi •• u«cou!d not mart int~rrst26Jan2016 1.556 Pftrlll~nt h••uer ill u""b~ to rcmltrm r~ revilW:d Pfty dllt~.~--~
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r.' t\ ~'\l:.l ·.e' ~t\ 'tl Itl ;t1 It! 1;\ It! it.! ,I ~ &1 ~I ,~IaU .Lf-wJr.w~rltr{ru-"g-TIrf\rEmployees Provldellt Fund OrgaDJsatJon(PF; EDLI Fund; EPl' Staff Pf; EPF staff Pension and Gratuity Fund)
Concurrent Audit ro~"the month or January. 2016
Portfolio Manager: State Bank of India lAMe) Annexure JI
Instances where ,securltles have been matured & still showing In the system as well as custodian holding
Name of securitySecurity Face Value Maturity Date Fund Manager's Response
""Code
13.75% UP'SFC 2007 501004 50,000,000 29-Jan-07 We have been advised by the Custodian SCS'
12.S00A.UP SFC"2009 # 501008 30,000,000 17-Feb-09 tha~ for all these securities legal cases are
11.25% GMlDe SR-5B 15JN13 FV RS 1 LAC . 778533 100,000 15-Jan-13 pending for recovery. Therefore, these securitieshave been kept as part of holding.
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Employees Provident Fund Orgatization(PensIon Fund)
Concurrent ~udit report f~~ the month of ~anuary 2016
-:' ,• ..
Sr. ParticularsNo. I1. Securities matured but still reflected In the system and cu~todlan holdjng (~efer Para (b) -
S61} :!
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CMndabhoy & Ja5500bt'loyChartered Accountants
Page lot 2
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EmployeesProvident FundOrga~ization(pension Fund)
Conc:urren\aud~~,reportfor the month of )anuary 2016
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Audit ObserVatIons Remarks as tofinal disposal ot ,tho observations
Sr•.No)
b} Review or MIS of Custodian:
We were 'Informed th~ Standard Chartered Bclnk(the Custodian) provides following MIS reports:I. Dally settled trade reportiI. expected Cash Flowfor Non GSe( 5ecuJ1tles
tor next day1\1. Daily Non G SecHoldlng StatementIv. Weeldy expected cashflow
Repllc S of theAultltoe
4. STATE BANK OF INDIA (AMe) II
No I. CommentsreqUired;!
I
a) Review of Fund now vls-t-vls bank account:
We have nr.tlewed funds ff.\ttow and outflow fromMIS provided by the PM and round the same to beIn agreement with the bank statements of StandardChartered a SBt (Security Service Branch).
,• We have verltled dally settlement report and No : Comments
found that generally the tl1lnsactlons are requlr~.settled WIthin one or two days. .:
,
• We have reviewed the expected cash flow No: Commentsstatement and found the SC!jme to be In requlr1!d •agreement with the bank statement. :,
III
• We have reviewed the holding statementreceived from Reserve Bank pf Indla- PublicDebt' Office (In respect d G 5e<:) and SCB (Inrespect 01 other securltles) and found the sam,tto be In agreement with the statement providedby the PH.
tn few cases. securities have been alreadymatured but stili shown In Holding statement otPM as well as In Custodian hold1ng statement.Details of the same are given Annexure I.
I
ExplanatIOn providedIn ""nexure 1.
I,,,I
I. Fixed deposits: No tlxed ~Its were Nq Commentspurchased during the month. r~ulred.
,
Chanda bhoy & JassoobhoyChartered AC~7ountants
Page 14.01 ;
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~turity Date I Funcl Mauger's Reapoue.~ "..
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Em~lOye.u•.Provident FUJlcl 01'lanJaation(Pert-ion Fu.Ddl .
unent Audit for the month or ..JaAuazy, 2016
Pori FolioMana,er.State BaDk of Iudia lAMe)Apncxure I
Instances wh.ere aecuritics have beeJl matured & .till ahowing iD th.e aysteDl as well aa custodian bol4iDC
!,"_____ ., __ • • 1 ?9..Jan-07Jwe have been a4vised by the Custodian sea that for.all
I ••••~ • • • • 20_Oct_07,these securities legal cases are pending for recovery.
Therefore, these securities hBve been kept as part 0
17-Feb-091hoJding.
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Item No 7 : Process or selection of new External Concurren-t Audito,l' (ECA) -regd.
1. The FIAC in iis"123111 meeting held on 18.01.2016 has taken the following decisions:-• • I
(i) Continuation of Mis Chandabhoy &. Jassobhoy as Extema~ Concurrent Auditor (EeA)till Octbber 2016.Simultaneously start the process of selection of new ECA for which the samecommittee constituted for the selection of Mutual Fund as ETF manufacture shall beengaged., .
(il)
.2. As regards point (i) above i.e. Continuation of Mis Chandabhpy &. Jassobhoy as ExternalConcurrent Auditor (ECA) till October 2016, the Agenda has already been placed in 211'" CBTmeeting held on 16.02.2016.3. As regards point (ii) above regarding the simultaneously starting the process of selection ofnew ECA for which the same committee constituted for the selection of Mutual Fund as ETfmanufacture shall be engaged. However, it is brought to the notice that CST in its 2041hmeeting(Item No.16) held on 26.08.2014 has decided that:-
(a) The task of selection of Extemal Concurrent Audit~ (HCA) with the assistance ofconsultant may be carried out by FIAC.
In the same meeting following was approved:-
(b) Approved the appointment of MIs CRISIL Ltd., as Consultant for Selection ofconcurrent Auditor (ECA).
4. Mis CRISIL Ltd." accordingly prepared the draft Request for Proposal (RFP) documents forthe selection of the External Concurrent Auditor (ECA), and the same was placed before the 115'"FIAC held on 11.11.2014. < •
5. The FIAC in its 1t Slhmeeting 00 the agenda of Request fot Proposal (RFP, documents forappointment as External Concurrent Auditor (ECA) for the Employe¢s' Provident 'Fund Organisation. .(EPFO) deliberated that FIAC decided that the tenure of present Ex~al ConeurrentAuditor shouldbe extended till October 2016 on the same tenns and conditions OR ~hich they were appointed.
6. 'Thus already CST has decided that the task of selection of ECA with the assistance, ofconsultant (MIs CRISIL) may be earned out by,FIAC. Request ro~proposal (RFP) prepared by theconsultant in this report is already tabled in ,IISIhFIAC. .
Proposal: In the light of above, the declsion of the FIAC! in ·its 113,,1Meeting held on18.01.1016 as mentioned above at point 1 (il) may be reconsidered so as in view of thedecision of 104"CBT held on 26.08.1014 the task of sel~tlon of External ConcurrentAuditor (ECA) with the assistance of consultant MIs CRiSIV may be carried out by FIAC.
. ,'.'.,