Investment norms for New Pension Scheme finalised

Paving the way for the New Pension Scheme (NPS) from this Friday, the Pension Fund Regulatory and Development Authority (PFRDA) On Wednesday announced investment guidelines for contributory plans.

Following recommendations from the Deepak Parekh-headed Expert Group and taking into account comments from the public, PFRDA has categorised NPS investments into three asset classes – E (equity), C (corporate paper) and G (government securities).

PFRDA has appointed State Bank of India, UTI, IDFC, ICICI Prudential Life Insurance, Kotak Mahindra and Reliance Mutual Fund as the fund managers for NPS. These players have to set up separate companies to manage the business. All players, barring Kotak Mahindra, have signed the requisite agreements, with the only remaining fund manager likely to sign the pact tomorrow.

As per the guidelines, investments in E scheme would allocate assets into index funds that replicate the portfolio of a particular index, such as the BSE’s 30-share Sensex or the NSE’s Nifty 50 index.

The G scheme would allow investors to park money in Government of India and State Government bonds. For this category, the Expert Group had recommended liquid funds of asset management companies (AMCs) and fixed deposits of banks that have a net worth of over Rs 500 crore, a capital adequacy of at least 9 per cent and whose proportion of net non-performing assets against net advances is below 5 per cent.

The C scheme would allocate investments in liquid funds of AMCs with average total assets under management of at least Rs 5,000 crore over the last six months. The scheme would also park assets in fixed deposits of scheduled commercial banks that fulfil the given criteria suggested by the Expert Group.

Further, the C class assets would also include debt securities with a maturity of at least three years. These instruments include debt papers issued by corporates, banks and financial institutions. PFRDA said that at least 75 per cent of the investment in this category has to be made in instruments having an investment grade rating from at least one credit rating agency.

The C class investments also allow allocations for credit-rated municipal bonds, infrastructure bonds, PSU bonds and credit-rated public financial institutions.
 

PAVING THE WAY
Asset Class/Scheme	Investment guideline
E	Index funds that replicate portfolio of Sensex or Nifty
G	GoI and state government bonds
C	Liquid funds, FDs, corporate and bank debt papers, PSU bonds, municipal bonds, infra bonds
Auto Choice	50% in E, 20% in G, and 30% in C (till 35 years of age), while 10% in E, 80% in G, and 10% in C (at 55 years of age)
Source: PFRDA

The funds of those investors who do not specify an asset class would be routed to the ‘Auto Choice’ scheme by default.

Under this option, 50 per cent of the investments would be allocated to E category assets, 20 per cent would be invested in G category and the rest in the C class of assets for investors up to the age of 35.

For investors at the age of 55 years, 10 per cent of the investments would go into the E class, 80 per cent would be invested in the G category and the rest 10 per cent would be parked in the C class of assets, under the auto choice option.