Investment New guidelines for NPS Schemes,effect from 10 June 2015

Investment guidelines for NPS Schemes (Applicable to Scheme CG, Scheme SG, Corporate CG and NPS Lite schemes of NPS and Atal Pension Yojana) w.e.f, 10th June, 2015.

PFRDA has changed investment guidelines for NPS schemes applicable to government sector raising investment cap in debt and related instruments by 5 per cent to 45 per cent.

As per the new guidelines of the Pension Fund Regulatory and Development Authority (PFRDA) investment allocation in the Government Securities and related investments has been reduced from 55 per cent to 50 per cent.

No change has been made in equity or related investments cap of 15 per cent.

The new guidelines will come into effect from June 10.

Investment Pattern-Percentage amount to be invested

CategoryInvestment  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.
Provided  further  that  investment   shall  be  made  in  such  bonds  of  a scheduled   commercial   bank  from  the  secondary   market  only  if such Tier  I  bonds  are listed.
Total  portfolio   invested  in this sub-category,   at any time,  shall  not be more than  2% of the total  portfolio  of the fund.
No  investment    in   this  sub-category    in  initial  offerings   shall  exceed
20% of the initial  offering.  Further,  at any point of time,  the aggregate value  of Tier  I     bonds  of any particular  bank  held by the fund  shall  not exceed  20%  of such  bonds  issued  by that  Bank
(c)    Rupee  Bonds  having  an outstanding   maturity  of at least  3  years
issued      by     institutions      of     the     International      Bank     for Reconstruction       and     Development,       International      Finance Corporation   and Asian  Development   Bank.
(d)   Term  Deposit  receipts  of not less than  one year  duration  issued by  scheduled  commercial    banks,   which   satisfy   the   following conditions        on  the  basis  of  published   annual   report(s)   for  the most  recent  years,  as required  to have  been  published   by them under  law:
(i)  having   declared   profit   in  the   immediately    preceding   three financial  years;
(ii)  maintaining    a  minimum    Capital   to  Risk  Weighted    Assets Ratio of 9%, or mandated  by prevailing   RBI norms,  whichever   is higher;
(iii)  having   net  non-performing    assets  of  not  more  than  4%  of
the net advances;
(iv) having  a minimum  net worth  of not less than  Rs. 200 crores. (e)    Units  of  Debt   Mutual   Funds   as  regulated    by  Securities    and
Exchange   Board of India:
(f)    The following  infrastructure   related  debt instruments:
(i)  Listed  (or  proposed   to  be  listed  in case  of fresh  issue)  debt securities     issued   by  body   corporates   engaged   mainly   in   the business  of development  or operation  and maintenance  of infrastructure,   or development,   construction  or finance  of low cost housing.
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 funds

8. 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 fund

10. 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