Central Bank Governor says focus is long-term:
EPF has invested in sound stocks
Charumini DE SILVA
The Employees Provident Fund (EPF) has invested in fundamentally
sound stocks in the stock market with a long-term focus, Central Bank
Governor Ajith Nivard Cabraal said.
“When the EPF enters the stock market, it will help to stabilize the
market on a long-term basis and that would safeguard the market, to some
extent, from speculative actions which are generally prevalent in
emerging markets,” he said. “The banking and financial sector is the
largest contributor to the Sri Lankan equity market with more than 20
percent of the total market capitalization. This sector has always been
performing exceptionally well,” Cabraal said.
That is why the EPF has now decided to invest in banking sector
shares to create more wealth for millions of EPF members in the long
run. The EPF has all rights to invest in the banking and financial
institutions in terms of the EPF Act. A large chunk of EPF investments
are in the Government paper and this trend would perhaps continue over
the next few years as well. However, if the Government were to reduce
its fiscal deficit, over the next few years (as they have announced),
there is a strong possibility that the EPF investment options of
investing in Government paper could reduce to some extent in the medium
to long-term.
He said, interest rates too could decline further and the returns to
the members could reduce proportionately, although such returns may be
reasonably above the inflation rate. “In that environment, a slight
shift towards other instruments which provide higher yields, such as;
debentures, mortgage backed securities and selected private equities
would be a useful diversification,” the Governor said.
EPF has been carefully investing a small portion of its funds in such
instruments in order to provide an edge to its overall returns, and this
policy will continue.
“As a prudent investor, our responsibility is to scan the environment
and anticipate the impact of various policy measures, both international
and local, in the future.
We have to look at these matters with a long-term focus and that is
the only way that we can ensure such a prudent and reasonable return,”
he said. In the future, we would concentrate more on long-term returns,
growth and capital gains, rather than short-terms gains. The way to
judge a long- term fund is not to see whether it is making money week by
week, but to look at its investment strategy and long-term focus. The
Monetary Board has given the broad direction to the investment committee
of the EPF that their focus should be based on those parameters and we
are satisfied with those broad directions are being followed in the
investment decisions that have been taken so far, he said.
The EPF has been providing exceptionally good returns to its members
over the past few years and they have done a lot better than what some
of the private sector managers of investment funds were able to achieve.
At present, EPF has an active membership of 2.1 million as at end June
2010.
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