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Investment in IPOs: PFRDA asks pension funds to formulate board-approved investment policy

KR Srivats New Delhi | Updated on July 31, 2021

Pensioners Left out istock.com/ clubfoto

Investment team allowed to take decisions on day-to-day basis

Pension regulator PFRDA has advised pension funds to formulate a detailed policy on investment in Initial Public Offer (IPOs) and get it approved by their boards. The investment team of these funds can take a decision on a day-to-day basis subject to compliance of the investment policy, the PFRDA said.

This has been stipulated in the latest guidelines for pension funds for investments in IPOs, Follow-on-Public Offering and /or Offer for Sale under the National Pension System and other pension schemes regulated/administered by the Authority.

The Pension Fund Regulatory and Development Authority (PFRDA) has, in the advisory on the guidelines, stipulated that investments can only be made in equity shares of such companies through IPO where the full float market capitalisation using the lower band of the issue price of the IPO is higher than the market capitalisation of 200th company in the list of top 200 stocks of body corporates listed on BSE or NSE as provided by the NPS Trust. The introduction of this threshold would mean that pension fund managers would not have the leeway to invest in IPOs of very small and mid-sized companies. A back-of-the-envelope calculation showed that IPOs of companies with post issue market capitalisation of over ₹20,000 crore may only be eligible for investment of pension monies, capital market observers said.

As regards investment in follow-on public offer (FPO) or Offer for Sale (OFS), the guidelines said investment in equity shares can be made in the shares of body corporates listed on the BSE or NSE, which are in top 200 stocks in terms of full market capitalisation. The pension funds have been advised to adopt the last published list of stocks prepared by the NPS Trust in this regard from time to time.

Raising FDI

The pension regulator’s move to allow pension funds to invest in certain IPOs and FPOs/OFS companies that form part of top 200 list of BSE/NSE comes on the heels of raising the foreign direct investment (FDI) from 49 per cent to 74 per cent.

Hitherto, pension funds were allowed to invest only in the listed shares of companies on the BSE or NSE, which had market capitalisation of not less than ₹5,000 crore and forming part of the F&O segment as on date of investment.

Pension assets under management (AUM) in the country has been growing at over 30 per cent and had recently surpassed the ₹6- lakh-crore mark. PFRDA expects the total AUM to touch ₹7.5 lakh crore by end-March 2022.

Published on July 31, 2021

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