PFRDA expands investment universe for pension funds

Our Bureau Mumbai | Updated on July 21, 2021

Allows them to invest in IPOs, FPOs and OFS

The Pension Fund Regulatory and Development Authority (PFRDA) has expanded the universe of investment for pension funds, allowing them to invest in the shares of top 200 companies listed on the exchanges and initial public offering (IPO) of companies, among others.

This move could give a leg up to the stock markets, coming as it does in the backdrop of the Foreign Direct Investment (FDI) limit in the pension sector being upped from 49 per cent to 74 per cent and the assets under management of the sector rising 35 per cent year-on-year to ₹6,07,449 crore as at May-end 2021.

“Actually, we are increasing the universe of investment, whether it is debt or equity, and some of the areas where we did not allow pension fund managers to invest earlier,” said Supratim Bandyopadhyay, Chairman, PFRDA.

While the cap on the overall investment in equities and related investments remains unchanged at 15 per cent, pension funds can now invest in IPOs, Follow on Public Offer (FPO) and Offer for Sale (OFS) of companies.

Pension funds can also invest in the shares of companies listed on Bombay Stock Exchange (BSE) or National Stock Exchange (NSE), which are the top 200 stocks in terms of full market capitalisation as on date of investment.

Hitherto, pension funds could invest in the shares of companies listed on BSE or NSE, which have market capitalisation of not less than ₹5,000 crore as on date of investment.

Higher headroom

In light of the higher government borrowing, pension funds have been allowed to invest up to 55 per cent of their corpus in the “government securities (G-Secs) and related investments” category as against up to 50 per cent limit in the 2015 guidelines.

Within the aforementioned category, PFRDA specified that deposits with any one scheduled commercial bank including its subsidiaries should not be more than 10 per cent of the portfolio of the scheme. This is a significant move in the backdrop of troubles in the past at Yes Bank and Lakshmi Vilas Bank.

The funds can now invest in AAA-rated debt securities issued by Real Estate Investment Trusts and Infrastructure Investment Trusts.

They can also invest in listed or proposed to be listed AAA-rated Municipal bonds and units of Debt ETFs issued by Government of India specifically meant to invest in bonds issued by Government-owned entities.

The investment limit for “debt instruments and related investments” is unchanged at up to 45 per cent while that for “short-term debt instruments and related investments” has been set higher at up to 10 per cent (up to 5 per cent as per 2015 guidelines). In the “asset-backed, trust-structured and miscellaneous investments category, the investment limit remains unchanged at up to 5 per cent.

Once these guidelines come into effect, the prescribed investment pattern shall be achieved separately for each successive financial year through timely and appropriate planning, the authority said.

PFRDA asked pension funds to exercise due caution to ensure that the same investments are not churned with a view to enhancing the fee payable. In this regard, commissions for investments in “short-term debt instruments and related investments” category need to be carefully charged, in particular.

Published on July 20, 2021

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