The Pension Fund Regulatory and Development Authority has tweaked investment rules to let fund managers raise exposure in debt mutual funds, infrastructure debt funds, asset-backed securities to ensure higher returns for government staff enrolled in the national pension system (NPS).
While keeping the investment limits for the four categories — government securities, debt securities, money market instruments and equities — unchanged at 55%, 40%, 5% and 15%, respectively, the PFRDA has widened investment horizon and allowed greater exposure in debt mutual funds.
Under the category of government securities, pension fund managers (PFMs) can invest up to 5% in gilt funds. Within the category of debt securities, PFMs can invest debt mutual funds apart from investing in corporate bonds, term deposits of banks, infrastructure debt funds, asset-backed securities and rupee bonds floated by World Bank, ADB and IFC. While the new investment guidelines notified by PFRDA for NPS of government staff widened the investment horizon to more debt products, it capped the exposure to 5% in pension fund managers’ group firms and 10% to non-promoter firms.
“As a measure to optimise returns of the subscribers and with a view to ensure quality investments in the interest of subscribers, it has been decided to amend the investment guidelines applicable to NPS schemes,” PFRDA said in a circular.
“The above guidelines shall take immediate effect and portfolios under all NPS schemes are sought to be regularized as on April 1, 2014 in line with the revised guidelines,” it said.
Though the earlier investment pattern for the NPS scheme for government staff was similar to the one notified by the finance ministry in 2008 for non-government provident funds, the new investment pattern provides PFMs wider choice.
The investment pattern of NPS for private sector, which allowed a maximum 50% equity exposure, remains unchanged.
After taking charge at the finance ministry in 2012, P Chidambaram urged financial regulators such as PFRDA, Irda and EPFO to channelise more household savings into the capital market. While regulators were cautious in raising the equity exposure limits, many of them tweaked investment rules to allow greater flow of investment in mutual funds, IDFs and corporate bonds.