Paving way for active fund management in National Pension System (NPS), PFRDA has allowed pension fund managers (PFMs) to invest NPS corpus in mutual funds. PFMs can now invest pension corpus in large cap equity funds, ETFs that track index, gilt funds, income funds and liquid funds.
NPS is a voluntary pension scheme launched by PFRDA which aims to provide pension to people in both the organized and unorganized sectors. Currently, there are three schemes under NPS – gilt, fixed income and equity. NPS can deploy up to 50% corpus in equities depending on the type of scheme or age of subscribers.
In its investment guidelines, PFRDA has allowed PFMs to invest in mutual funds having at least 65% exposure to large cap stocks. The pension fund regulator has also allowed PFMs to take equity exposure through low cost index ETFs and CPSE ETFs. However, PFMs can also deploy NPS corpus in shares having a minimum market capitalisation of Rs.5,000 crore on their own.
In addition, PFMs are allowed to invest in income funds, gilt funds and liquid funds to take exposure to debt instruments.
Experts believe that the Indian mutual fund industry can tap this opportunity to grow its assets.Dinesh Khara, MD & CEO, SBI Mutual Fund feels that the move will help mutual fund industry to position itself as a long term investment vehicle. Also, it will help increase AUM of the MF industry, he added.
The sales head of a foreign fund house believes that pension fund manager has a major role to play in selection of a scheme. “Now the ball is in PFMs’ court. They should ensure that they choose a scheme which can deliver superior performance.”
Earlier in May 2015, PFRDA had set up a committee headed by G.N. Bajpai to review investment guidelines of NPS. Among its key recommendations were introduction of active fund management and removal of 50% cap on equity investments.
The new guidelines have come with immediate effect.
