Investment guidelines for NPS Schemes w.e.f 10.06.2015.
Pension Fund Regulatory& Development Authority1st Floor, ICADR Building,Plot No. 6, Vasant KunjInstitutional Area, Phase-I,New Delhi – 110070Tel.·26897948,26897949Fax . 26897938CIRCULARPFRDA/2015/16/PFM/7 Date: 03rd June, 2015
| Category | Investment Pattern | Percentage amount to be invested |
| (i) | (a)
Government Securities,(b) Other Securities { ‘Securities’ as defined
in section 2(h) of the Securities Contracts (Regulation) Act,
1956} the principal whereof and interest whereon is fully and
unconditionally guaranteed by the Central Government
or any State Government.
The portfolio invested under this sub-category of securities shall not
be in excess of 10% of the total portfolio of the G-Sec in
the concerned NPS Scheme of the pension fund at any point of time.
(c) Units of Mutual Funds set up as dedicated funds for investment
in Govt. securities and regulated by the Securities and Exchange Board of India:
Provided that the portfolio invested in such mutual funds shall not be
more than 5% of the of the G-Sec in the concerned NPS Scheme of the
pension fund at any point of time and fresh investments made in them
shall not exceed 5% of the fresh accretions in the year.
| Upto 50% |
| (ii) | Debt Instruments and Related Investments (a)
Listed (or proposed to be listed in case of fresh issue) debt
securities issued by bodies corporate, including banks and public
financial institutions (Public Financial Institutions’ as defined
under Section 2 of the Companies Act, 2013), which have a minimum
residual maturity period of three years from the date of investment.
(b) Basel Ill Tier-1 bonds issued by scheduled commercial banks under RBI Guidelines:
Provided that in case of initial offering of the bonds the investment
shall be made only in such Tier-I bonds which are proposed to be listed.
Further, this category shall also include securities issued
by Indian Railways or any of the body corporates in which
it has majority shareholding.
This category shall also include securities issued by any
Authority of the Government which is not a body corporate and·
has been formed mainly with the purpose of promoting development
of infrastructure.
It is further clarified that any structural obligation
undertaken or letter of comfort issued by the Central
Government, Indian Railways or any Authority of the Central
Government, for any security issued by a body corporate
engaged in the business of infrastructure, which notwithstanding
the terms in the letter of comfort or the obligation
undertaken, fails to enable its inclusion as security
covered under category (i) (b) above, shall be treated as an
eligible security under this sub-category.
(ii) Infrastructure and affordable housing Bonds issued by
any scheduled commercial bank, which meets the
conditions specified in (ii)(d) above.
(iii)Listed (or proposed to be listed in case of fresh issue)
securities issued by Infrastructure debt funds operating as a
Non-Banking Financial Company and regulated by Reserve Bank of
India.
(iv) Listed (or proposed to be listed in case of fresh issue)
units issued by Infrastructure Debt Funds operating as a
Mutual Fund and regulated by Securities and Exchange Board of
India.
It is clarified that, barring exceptions mentioned above, for the
purpose of this sub-category (f), a sector shall be
treated as part of infrastructure as per Government of
India’s harmonized master-list of infrastructure sub-sectors:
Provided that the investment under sub-categories (a), (b) and
(f) (i) to (iv) of this category No. (ii) shall be made only
in such securities which have minimum AA rating or equivalent
in the applicable rating scale from at least two credit
rating agencies registered with Securities and Exchange
Board of India under Securities and Exchange Board of
India (Credit Rating Agency) Regulation, 1999. Provided
further that in case of the sub-category (f) (iii) the
ratings shall relate to the Non-Banking Financial
Company and for the subcategory (f) (iv) the ratings
shall relate to the investment in eligible securities
rated above investment grade of the scheme of the fund.
Provided further that if the securities/entities have
been rated by more than two rating agencies, the two lowest
of all the ratings shall be considered.
Provided further that investments under this category
requiring a minimum AA rating, as specified above, shall
be permissible in securities having investment grade rating
below AA in case the risk of default for such securities
is fully covered with Credit Default Swaps (CDSs) issued
under Guidelines of the Reserve Bank of India and purchased
along with the underlying securities. Purchase amount of
such Swaps shall be considered to be investment made under
this category.
For sub-category (c), a single rating of AA or above by a domestic or international rating agency will be acceptable.
It is clarified that debt securities covered under category (i) (b) above are excluded from this category (ii).
| Upto 45% |
| ( iii) | Short-term Debt Instruments and Related InvestmentsMoney market instruments:
Provided that investment in commercial paper issued by body
corporates shall be made only in such instruments which have
minimum rating of A 1 + by at least two credit rating agencies
registered with the Securities and Exchange Board of India.
Provided further that if commercial paper has been rated by more than
two rating agencies, the two lowest of the ratings shall be
considered.
Provided further that investment in this sub-category in Certificates
of Deposit of up to one year duration issued by scheduled commercial
banks, will require the bank to satisfy all conditions mentioned in
category (ii) (d) above.
(b) Units of liquid mutual funds regulated by the Securities and
Exchange Board of India with the condition that the average total asset
under management of AMC for the most recent six month period of atleast
Rs. 5000/- crores
(c) Term Deposit Receipts of up to one year duration issued by such
scheduled commercial banks which satisfy all conditions mentioned in
category (ii) (d) above.
| Upto 5% |
| (iv) | Equities and Related InvestmentsShares of body corporates listed on Bombay Stock Exchange (B SE) or National Stock Exchange (NSE), which have:
(i) Market capitalization of not less than Rs. 5000 crore as on the date of investment;and
(ii) Derivatives with the shares as underlying traded in either of the two stock exchanges.
(b) Units of mutual funds regulated by the Securities and Exchange Board
of India, which have minimum 65% of their investment in shares of
body, corporates listed on BSE or NSE.
(c) Exchange Traded Funds (ETFs)/lndex Funds regulated by the Securities
and Exchange Board of India that replicate the portfolio of either BSE
Sensex Index or NSE Nifty 50 Index.
(d) ETFs issued by SEBI regulated Mutual Funds constructed
specifically for disinvestment of shareholding of the Government of
India in body corporates.
(e) Exchange traded derivatives regulated by the Securities and Exchange
Board of India having the underlying of any permissible listed stock or
any of the permissible indices, with the sole purpose of hedging.
Provided that the portfolio invested in derivatives in terms of contract
value shall not be in excess of 5% of the total portfolio invested in
sub-categories (a) to (d) above.
| Upto 15% |
| (v) | Asset Backed, Trust Structured and Miscellaneous Investments(a) Commercial mortgage based Securities or Residential mortgage based securities.
(b) Units issued by Real Estate Investment Trusts regulated by the Securities and Exchange Board of India.
(c) Asset Backed Securities regulated by the Securities and
Exchange Board of India.
(d) Units of Infrastructure Investment Trusts regulated by the Securities and Exchange Board of India.
Provided that investment under this category No. (v) shall only be in
listed instruments or fresh issues that are proposed to be
listed.
Provided further that investment under this category
shall be made only in such securities which have
minimum AA or equivalent rating in the applicable rating
scale from at least two credit rating agencies registered by
the Securities and Exchange Board of India under Securities
and Exchange Board of India (Credit Rating Agency)
Regulations, 1999. Provided further that in case of the
sub-categories (b) and (d) the ratings shall relate to the
rating of the sponsor entity floating the trust.
Provided further that if the securities/entities have
been rated by more than two rating agencies, the two lowest
of the ratings shall be considered.
| Upto 5% |
2. Fresh accretions to the fund will be .invested in the permissible categories specified in this investment pattern in a manner consistent with the above specified maximum permissible percentage amounts to be invested in each such investment category, while also complying with such other restrictions as made applicable for various sub-categories of the permissible investments.3. Fresh accretions to the funds shall be the sum of un-invested funds from the past and receipts like contributions to the funds, dividend/interest/commission, maturity amounts of earlier investments etc., as reduced by obligatory outgo during the financial year.4. Proceeds arising out of exercise of put option, tenure or asset switch or trade of any asset before maturity can be invested in any of the permissible categories described above in the manner that at any given point of time the percentage of assets under that category should not exceed the maximum limit prescribed for that category and also should not exceed the maximum limit prescribed for the sub-categories, if any. However, asset switch because of any RBI mandated Government debt switch would not be covered under this restriction.5. If for any of the instruments mentioned above the rating falls below the minimum permissible investment grade prescribed for investment in that instrument when it was purchased, as confirmed by one credit rating agency, the option of exit shall be considered and exercised, as appropriate, in a manner that is in the best interest of the subscribers.6. On these guidelines coming into effect, the above prescribed investment pattern shall be achieved separately for each successive financial year through timely and appropriate planning.7. The prudent investment of the funds within the prescribed pattern is the fiduciary responsibility of the Pension Funds and Trust and needs to be exercised with appropriate due diligence. The Trust and Pension Fund would accordingly be responsible for investment decisions taken to invest the funds8. The Pension Funds and trust will take suitable steps to control and optimize the cost of management of the fund.9. i. The trust and Pension Funds will ensure that the process of investment is accountable and transparent.ii. It will be ensured that due diligence is carried out to assess risks associated with any particular asset before investment is made by the fund in that particular asset and also during the period over which it is held by the fund. The requirement of ratings as mandated in this notification merely intends to limit the risk associated with investments at a broad and general level. Accordingly, it should not be construed in any manner as an endorsement for investment in any asset satisfying the minimum prescribed rating or a substitute for the due diligence prescribed for being carried out by the fund10. Due caution will be exercised to ensure that the same investments are not churned with a view to enhancing the fee payable. In this regard, commissions for investments in Category Ill instruments will be carefully charged, in particular.11. Following restrictions/filters are being imposed for Government NPS schemes (Applicable to Government Sector, Corporate CG and NPS Lite schemes of NPS and Atal Pension Yojana) to reduce concentration risks in the NPS investment of the subscribers:a) NPS investments have been restricted to 5% of the ‘paid up equity capital’* of all the sponsor group companies or 5% of the total AUM under Equity exposure whichever is lower, in each respective scheme and 10% in the paid up equity capital of all the non-sponsor group companies or 10% of the total AUM under Equity exposure whichever is lower, in each respective scheme.*’Paid up share capital': Paid up share capital means market value of paid up and subscribed equity capital.b) NPS investments have been restricted to 5% of the ‘net-worth” of all the sponsor group companies or 5% of the total AUM in debt securities (excluding Govt. securities) whichever is lower in each respective scheme and 10% of the net-worth of all the non-sponsor group companies or 10% of the total AUM in debt securities (excluding Govt. securities) whichever is lower, in each respective scheme.#Net Worth: Net worth would comprise of Paid-up capital plus Free Reserves including Share Premium but excluding Revaluation Reserves, plus Investment Fluctuation Reserve and credit balance in Profit & Loss account, less debit balance in Profit and Loss account, Accumulated Losses and Intangible Assets.c) Investment exposure to a single Industry has been restricted to 15% under all NPS Schemes by each Pension Fund Manager as per Level-5 of NIC classification. Investment in scheduled commercial bank FDs would be exempted from exposure to Banking Sector.d) if the PF makes investments in Equity/Debt instruments, in addition to the investments in Index funds/ETF/Debt MF, the exposure limits under such Index funds/ETF/Debt MF should be considered for compliance of the prescribed the Industry Concentration, Sponsor/ Non Sponsor group norms. (For example, if on account of investment in Index Funds/ ETFs/Debt MFs, if any of the concentration limits are being breached than further investment should not be made in the relative Industry /Company).12. These instructions supersede only part of Investment Guidelines for NPS Schemes Applicable to Government Sector, Corporate CG and NPS Lite schemes of NPS prescribed by PFRDA vide Circular No. PFRDA/2014/02/PFM/1 dated 29.01.2014 and will be effective from 101h June 2015.13. Investment Guidelines for NPS Private Sector {applicable to E(Tier-1& II), C (Tier-I & 11) and G (Tier-I & II)} will be unchanged until further orders .(Sumeet Kaur Kapoor)
General Manager
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