Section 5 (1) e of the EPF Act allows CBSL to invest EPF’s funds that are not immediately required for the purposes outlined in the Act. These funds may be directed into various securities that CBSL deems appropriate and is also authorized to sell these securities. These funds are invested considering the objective of EPF funds to achieve a reasonable risk-adjusted return while ensuring the safety of the Fund. This is done through a prudent and innovative fund management process, with the ultimate goal of providing maximum retirement benefits to the members.
Fund Management
The total investment portfolio (book value) of the Fund grew by 12.7 per cent to Rs. 4,393.8 billion as at end 2024 from Rs. 3,900.1 billion recorded as at end 2023. As at end 2024, the investment portfolio consisted of 94.5 per cent in government securities, 4.4 per cent in equity, 0.3 per cent in corporate debentures and the remaining 0.8 per cent in reverse repurchase agreements (Table 1).
Table 1: Investment Portfolio
| Type of Investment | 2024 | 2023 | ||
|---|---|---|---|---|
| Amount(Rs.bn.) | Share (%) | Amount (Rs.bn.) | Share (%) | |
| Treasury Bonds & Bills | 4,153.2 | 94.5 | 3,722.2 | 95.4 |
| Equities | 193.4 | 4.4 | 138.1 | 3.5 |
| Corporate Debt Instruments | 13.0 | 0.3 | 14.1 | 0.4 |
| Reverse Repos | 34.2 | 0.8 | 25.8 | 0.7 |
| Total | 4,393.8 | 100.0 | 3,900.1 | 100.0 |
In 2024, the total investment income of the Fund amounted to Rs. 513.8 billion (Table 2). Interest income was the major source of income, and it grew by 2.9 per cent to Rs. 455.1 billion in 2024 from Rs. 442.4 billion in 2023. A noteworthy increase in gains from financial instruments was shown, rising by 49.9 percent to Rs. 53.5 billion compared to the previous year. This was largely driven by rising market prices on the Colombo Stock Exchange. Furthermore, dividend income from the equity portfolio surged to Rs. 5.5 billion in 2024, compared to Rs. 3.0 billion in 2023.
Table 2: Income on Investments
| Source of Income | 2024 | 2023 | ||
|---|---|---|---|---|
| Amount(Rs.mn) | Share (%) | Amount (Rs.mn) | Share (%) | |
| Interest Income | 455,126.0 | 88.6 | 442,419.3 | 92.0 |
| Marked to market gain/loss from Equity Investments | 53,488.4 | 10.4 | 35,682.6 | 7.4 |
| Dividend Income |
5,481.1 | 1.1 | 2,997.3 | 0.6 |
| Impairment of Financial Assets | (313.7) | (0.1) | 4.0 | 0.0 |
| Total | 513,782.7 | 100.0 | 481,103.3 | 100.0 |
The majority of EPF’s investment is in Treasury bonds. Over 80 per cent of the Treasury bond portfolio is invested in 5 years and above maturities with a Weighted Average Return of 10.80 per cent . The maturity profile of the Treasury bond portfolio as at end 2024 is given in Table 3.
Table 3: Maturity Profile of the Treasury Bond Portfolio
| Maturity | Face Value (Rs. mn.) | Share (%) | Weighted Average Yield (%) |
|---|---|---|---|
| Less than 1 year | 150.00 | 0.0% | 8.32% |
| 1-2 years | 125,455.29 | 3.0% | 13.04% |
| 3-4 years | 707,397.02 | 16.9% | 11.81% |
| 5 year and above | 3,362,450.91 | 80.1% | 10.80% |
| Total | 4,195,453.23 | 100.0 | 11.04 |
Overall Return of the Fund
The Fund earned a total gross income of Rs. 514.1 billion in 2024 (Table 4) and reported a net profit of Rs. 446.9 billion, derived after operating and tax expenditure. Net profit is an increase by 7.5 per cent compared to that of 2023. The EPF was able to earn a 12.4 per cent Return on Average Investment in 2024 while maintaining operating expenses at 0.59 per of the gross income.
With the introduction of the Inland Revenue Act, No.24 of 2017, which was effective from 01st April 2018, the income tax rate applicable for the fund increased from 10 per cent to 14 per cent. The applicable Income Tax rate for applicable for dividends received is 15 per cent. The tax expense increased to Rs.64,137.1 million in 2024, a 1.6 per cent increase compared to Rs. 63,134.1 million in 2023.
Accordingly, the EPF declared an interest rate of 11.00 per cent on balances lying to the credit of member accounts by the end 2024.
The summary of performance indicators of the Fund of the last five years is tabulated in Table 4 below.
Table 4: Five Year Summary of Key Performance Indicators
| Item | Rs. million | ||||
|---|---|---|---|---|---|
| 2020 | 2021 | 2022 | 2023 | 2024 | |
| Interest Income | 277,409.0 | 293,678.3 | 349,269.2 | 442,419.3 | 455,126.0 |
| Dividend Income | 2,985.0 | 6,685.5 | 7,527.8 | 2,997.3 | 5,481.1 |
| Net gain / (loss) on FI at FV | 5,023.1 | 41,840.1 | (40,995.6) | 35,682.6 | 53,488.4 |
| Impairment of Financial Assets | 1.6 | (1.0) | (3.9) | 4.0 | (313.7) |
| Investment Income | 285,418.8 | 342,202.9 | 315,797.5 | 481,103.3 | 513,781.7 |
| Other Income | 212.1 | 171.7 | 270.4 | 241.1 | 326.3 |
| Total Gross Income | 285,630.9 | 342,374.5 | 316,067.9 | 481,344.4 | 514,108 |
| Operating Expenditure | (1,645.1) | (1,646.1) | (2,133.8) | (2,304.7) | (3,044.7) |
| Income Tax | (39,062.6) | (41,656.9) | (49,981.6) | (63,134.1) | (64,137.1) |
| Profit for the Year | 244,923.2 | 299,071.4 | 263,952.5 | 415,905.6 | 446,926.2 |
| Retained Profit Brought Forward | 129.1 | 429.9 | 61.3 | 46.4 | 759.1 |
| Unrealized Gain/Loss on Listed Equity | – | (40,503.8) | 41,005.2 | (23,707.2) | – |
| Net Unrealized Gain on Unlisted Equity | – | – | – | (10,662.1) | (3,876.8) |
| Unrealized Gain on Listed Equity in previous year | – | – | – | – | 28,829.2 |
| Profit available for distribution | 245,052.3 | 258,997.5 | 305,018.9 | 381,582.8 | 472,637.7 |
| Return on Average Investment (%) | 10.6 | 11.4 | 9.5 | 13.0 | 12.4 |
| Interest Rate on Member Balances (%) | 9.0 | 9.0 | 9.0 | 13.0 | 11.0 |
Governance Framework for Risk Management of Employees’ Provident Fund
The Monetary Board (MB) of the CBSL as the custodian of the Fund is overseeing the risk management of the EPF. Accordingly, the risk management activities of EPF are also considered as an integral part of the Risk Governance structure of the CBSL which focuses on both financial and non-financial risks pertaining to all its activities including EPF’s activities. MB is the ultimate decision making authority of the fund management activities of the EPF. It provides policy direction for the investment activities of the EPF fund and specifying the overall risk parameters, such as the risk appetite and risk tolerance levels within which the fund should be managed. Further, the MB is managing the respective activities through two high-level committees namely, Board Risk Oversight Committee (BROC) and EPF Investment Oversight Committee (EIOC) in order to strengthen the governance of the risk management structure the EPF.
The BROC is responsible for overseeing the risk management function and the EIOC provides the highest level of oversight authority pertaining to the fund management activities. The role of the EIOC is to oversee the investment activities of the EPF by providing strategic and policy guidance for the management of the fund. Further, powers with respect to the day-to-day investment decision-making function of the EPF fund management activities have been delegated to the departmental level committee, the EPF Investment Committee (EIC). The Middle Office of the Fund Management Division of EPF oversee the daily operational risk aspects on a continuous basis as the First Line of Defense. Accordingly, both pre and post compliances of investment activities are monitored in line with the parameters provided in Investment Policy Statement (IPS), Strategic Asset Allocation (SAA) and Investment Guidelines (IG). The Risk Management Department (RMD) acts as the Second Line of Defense and responsible for providing the policy framework for the investment governance processin through an independent process of assessing, monitoring and reporting risks associated with the fund management activities of the EPF. Accordingly, providing applicable policy directions and guidelines relating to investment activities are handled by RMD through revising and updating the IPS, SAA and IG in line with updated market requirements, to improve the existing work procedures and to provide greater independence over the investment decision making process while maintaining an adequate level of internal controls.As the Third Line of Defense, Internal Audit Department provides risk assurance with regard to the fund management function of EPF.
Further, a distinct mechanism is in place for escalation and addressing of non-financial risks related to the overall EPF Department’s activities through a separate committee, the Non-financial Risk Management Committee (NFRMC). Accordingly, periodic reviews are conducted for identification and review of non-financial risks and to decide and monitor the risk mitigation actions thereon through RMD of CBSL.
