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Remya Nair

Mumbai, Nov. 6 Pension funds managing the New Pension Scheme (NPS) for Government employees will conform to new investment guidelines by the end of this fiscal, said fund managers.

The Pension Fund Regulatory and Development Authority (PFRDA) has issued the new investment guidelines last week, allowing higher investment in equities to fund managers.

Pension funds managing the NPS for Government employees will be able to invest up to 15 per cent of their corpus in equities. The earlier limit was 5 per cent.

The NPS for Central Government employees has a corpus of around Rs 3,000 crore. Of this, around Rs 1,600 crore is managed by SBI Pension Fund, and the remaining Rs 1,400 crore by UTI Retirement Solutions and LIC Pension Fund.

Though the change in the investment pattern was announced some time ago, the communication came only now, said an official with a pension fund house. “Earlier, even though we wanted to invest in stocks of companies based on our assessment of risk and return, we were hindered by the regulation,” the official said.

The investment pattern was relaxed to give more flexibility to pension fund managers. Under the NPS for the unorganised sector where the investors get the option of the investment pattern, majority of the investors have opted for 50 per cent equity.

Earlier guidelines for NPS for government employees mandated that pension fund managers invest at least 25 per cent of the funds in Government securities, 15 per cent in State development loans and 25 per cent in bonds issued by public sector undertakings (PSUs) and public financial institutions (PFIs).

However, investment in equities was capped at 5 per cent and investment in bonds issued by private companies was capped at 10 per cent.

According to the new guidelines, investments in Government securities and State development loans have been put under one bracket and capped at 55 per cent. A limit of 40 per cent has been imposed on investment in bonds issued by PSUs, PFIs and corporates.

Fund managers can also invest in money market instruments such as Treasury bills, commercial papers and certificate of deposits subject to a cap of 5 per cent.

Earlier, pension fund managers could invest only in stocks of companies whose bond issuances have been rated by credit rating agencies. This ruled out stocks of companies which do not raise debt.

Now, fund managers can invest in stocks of companies listed on the BSE and NSE provided they are present in the derivative segment.

Pension fund managers will also be able to churn their portfolio some more with relaxation in tradeable limits. Earlier, 10 per cent of the Government security portfolio and the whole of the equity portfolio were tradeable. Now, fund managers can trade subject to a cap that the trading volume is twice the holding.

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