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(i) Government Securities
The Government securities portfolio of EPF consists of Treasury bonds, Rupee loans and Treasury bills. The realized return from the Government securities portfolio (i.e. interest income, amortization gains and capital gains) was 16.2 per cent for Year 2009. EPF was able to take advantage of the declining interest rate environment which prevailed throughout the year by realizing capital gains by engaging in secondary market activities. Hence, the capital gains from Government securities including mark-to-market gains increased by Rs. 1,896 million to Rs. 1,920 million during 2009, compared to that of Rs. 24 million in the preceding year.
The return on EPF’s investments was highly linked with the maturity profile of the Government securities portfolio, since major portion of the funds (i.e., 97.1 per cent) were invested in such securities with various interest rates and term-structures. As at end 2009, the Weighted Average Rate of Return on Government securities held by the EPF was 14.98 per cent while the yields of those securities varied between 12.60 percent and 16.61 percent depending on their term-structure.
(ii) Corporate Debt Instruments
EPF has invested in highly credit-worthy corporate debt instruments such as Corporate Debentures, Trust Certificates, Pass-through Certificates and Mortgage –backed securities. During 2009, the average return on the corporate debt instruments portfolio of EPF was 14.54 per annum.
(iii) Equity Investments
EPF’s equity portfolio comprises of both listed and un-listed equities. Although, the Sri Lankan equity market was fairly sluggish during the first four months of 2009, a dramatic improvement in the market was recorded after the end of the war. The dividend income and capital gains, including mark-to market gains, was Rs. 368 million in 2009 which was a 101 per cent increase compared to that of Rs. 183 million in 2008. Accordingly, the realized rate of return on the average listed equity portfolio stood at 8.4 per cent. With the intention of capitalizing the opportunities in the stock market, the equity portfolio of EPF was expanded to Rs. 6,877.8 million (at cost) by end 2009 from that of Rs. 3,890.9 million (at cost) as at end 2008. The unrealized gains of the equity portfolio (both long-term and short-term portfolios) stood at Rs. 2,318.1 million by the end of year 2009.
(iv) Repurchase Agreements
In order to manage a sound liquidity position, the Fund has invested 0.6 per cent of the moneys in the repurchase agreements (Repo). The average rate of return on repo investments was 12.5 per cent for year 2009.
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 Members’ Wealth
In 2009, after transferring Rs. 9,325 million to the reserves, a sum of Rs. 90,690 million was available for distribution as interest to the members of the Fund.
The interest payments to the member balances were 13.75 percent on total member balances.
This was an increase of 55 basis points compared to the rate paid in the preceding year at 13.20 percent. This was the highest rate of interest paid by EPF, ever since its inception. Since interest is paid on the year-end balance for the full year, the Effective Interest Rate (EIR)1 is estimated at 13.92 per cent.
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Member Contributions and Payment of Retirement Benefits
At present, the mandatory EPF contribution rate stands at 20 per cent of the gross earnings of the member. The employee is required to contribute 8 per cent from his/her gross salary whereas the employer is obliged to contribute 12 per cent of the same.
In the year under review, EPF received Rs.48.7 billion as member contributions. This was a 6.0 per cent increase compared to Rs. 46.0 billion member contributions received in 2008. During 2009, EPF paid Rs. 31.9 billion as refund benefits to the members or their legal heirs, which is an increase of 23 per cent from that of Rs. 25.9 billion in 2008. The net contributions (contributions less refunds of benefits) stood at Rs. 16.8 billion during the year compared with Rs. 20 billion in 2008. Compared to the preceding year, the number of refund applications processed increased by 5.4 per cent to 108,065 applications during 2009.
Over the years, both the contribution receipts, refund payments and number of refunds made by the EPF have shown an upward trend. However, during the past several years growth in refund payments has exceeded the growth in contribution receipts. Although, this is not a critical concern for the Fund at present, this trend might continue in future in the context of the aging population.
Majority who claim EPF benefits are the members who have reached their retirement age. Further, a considerable portion of refunds are made for female members, who have resigned from the job due to marriage.
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