New Pension Scheme: Investment Guidelines for Private Sector NPS

1. Guidelines

1.1

The PF will manage the following separate
schemes, each investing in a different asset class, being:

1.1.1

Asset class E (equity market instruments)
– (a)The investment by an

NPS participant in this asset class would be
subject to a cap of 50%. This asset class will be invested in shares of the
companies which are listed in Bombay Stock Exchange or National Stock
Exchange and on which derivatives are available or are part of BSE Sensex or
Nifty Fifty Index. subject to restrictions outlined in Clause 2 below

(b)The permitted cap, as mentioned above, is
expected to be maintained at that level at all points in time. However, the
amount of funds invested in that asset class can differ from the specified
cap by no more than 5% for purposes of portfolio balancing.

1.1.2

Asset class G (Government Securities) –
This asset class will be invested in central government bonds and state
government bonds subject to restrictions outlined in Clause 2 below.

1.1.3

Asset class C (credit risk bearing fixed
income instruments) – This asset class contains bonds issued by any
entity other than Central and State Government. This asset class will be
invested in Fixed deposits and credit rated debt securities. This includes
rated bonds/securities of Public Financial Institutions and Public sector
companies, rated municipal bodies/infrastructure bonds and bonds of all firms
(including PSU/PSE), subject to restrictions outlined in Clause 2 below.

1.1.4

Corporate CG – Presently applicable to
only SBI Pension Funds Private Ltd, UTI Retirement Solutions Ltd & LIC
Pension Fund Ltd. and replicates the scheme as applicable to Central
Government employees and subject to instructions from PFRDA/NPS Trust in this
regard from time to time.

1.1.5

NPS Lite – Investment pattern similar to
that prescribed by the Central Government for its own employees as amended
from time to time (charges applicable as per Schedule VII).

1.2

The PF must not leverage the portfolio. For the
purpose of this Schedule, the PF shall be deemed to have leveraged the
portfolio if it:

1.2.1

enters into borrowings or other financial
arrangements or creates or purports or attempts to create any security,
charge, mortgage, pledge, lien or encumbrance of any kind whatsoever on the
assets of the portfolio or any part thereof;

1.2.2

undertakes any transaction the result of which
would overdraw the account maintained by the Custodian on behalf of the PF
for the purpose of settling transactions;

1.2.3

commits the Trustee to supplement the assets of
the portfolio or the account maintained by the Custodian on behalf of the PF
for the purpose of settling transactions without the prior written consent of
the Trustee by a Proper Instruction, either by borrowing in the name of the
PF or the Trustee or by committing the PF or the Trustee to a contract which
may require the Trustee to supplement those assets; or

1.2.4

allows market movement to result in a leveraged
position.

2. Investment Universe

2.1

Asset class E (equity market instruments)

2.1.1

Authorised Investments

Investment in shares of the companies which are
listed in Bombay Stock Exchange or National Stock Exchange and on which
derivatives are available or are part of BSE Sensex or Nifty Fifty Index.

2.1.2

Restrictions

a.

the assets are not to be encumbered.

b.

the PF shall buy and sell securities on the basis
of deliveries and shall in all cases of purchases, take delivery of relative
securities and in all cases of sale, deliver the securities and shall in no
case put itself in a position whereby it has to make short sale or carry
forward transaction or engage in badla finance (except as permitted under the
extant regulations, from time to time).

c.

the investment exposure in an industry sector
(classification as per NIC classification) shall be restricted to 15% of all
NPS schemes portfolio of each PFM .

d.

the investment in any equity stock of a sponsor
group shall be restricted to 5% of the paid up equity capital of all the
sponsor group companies or 5% of the AUM of the concerned NPS scheme (Tier I
and II taken together) , whichever is lower. The investment in equity stock
of the investee company of sponsor group shall be restricted to 5% of the
paid up equity capital of the concerned investee company of the sponsor group
or 5% of the AUM of the concerned NPS scheme (Tier I and II taken together) ,
whichever is lower

e.

the investment in any equity stock of a
non-sponsor group shall be restricted to 10% of the paid up equity capital of
the concerned group companies of a non- sponsor group or 10% of the AUM of
the concerned NPS scheme (Tier I and II taken together) , whichever is lower.
The investment in any equity stock of the concerned investee company of
non-sponsor group shall be restricted to 10% of the paid up equity capital of
the investee company of a non- sponsor group or 10% of the AUM of the
concerned NPS schemes (Tier I and II taken together) , whichever is lower.

f.

investment in IPOs/FPOs is not allowed

g.

investment in unlisted equity shares or equity
related instruments is not permitted except in derivatives for the purpose of
hedging and portfolio balancing only in accordance with the guidelines issued
by SEBI/RBI

h.

no loans for any purpose can be advanced by the
PF.

i.

pending deployment of funds of a scheme in
securities in terms of investment objectives of the scheme, funds may be
invested in short-term deposits of schedule commercial banks or in call
deposits or in short term money market instruments or other liquid
instruments or liquid schemes of mutual funds not exceeding a limit of 10% of
the scheme corpus on temporary basis only.

2.2

Asset class G (Government Securities)

2.2.1

Authorised Investments

1.

Government of India Bonds

2.

State Government Bonds
restricted to 10% of the AUM of the Scheme and 5% to any individual state
government

2.2.2

Restrictions

a)

the assets are not to be encumbered

b)

no loans for any purpose can be advanced by the
PF.

c)

pending deployment of funds of a scheme in
securities in terms of investment objectives of the scheme, funds may be
invested in short-term deposits of schedule commercial banks or in call
deposits or in short term money market instruments or other liquid
instruments or liquid schemes of mutual funds not exceeding a limit of 10% of
the scheme corpus on temporary basis only.

2.3

Asset class C (credit risk bearing fixed
income instruments)

2.3.1

Authorised Investments

(i)

Fixed Deposits of not less than 365 days of
scheduled commercial banks with following filters:

a)

Net worth of at least Rs.500 crores and a track
record of profitability in the last three years.

b)

Capital adequacy ratio of not less than 9% in the
last three years. Net NPA of under 5% as a percentage of net advances in the
last year

c)

List to be reviewed half-yearly

(ii)

(a)

Debt securities with maturity of not less than
three years tenure issued by Bodies Corporate including scheduled commercial
banks and public financial institutions [as defined in Section 4 (A) of the
Companies Act]

(b)

Provided that at least 75% of the investment in
this category is made in instruments having an investment grade rating from
at least two credit rating agency. Apart from the ratings by agencies, PFM
shall undertake their own due diligence for assessment of risks associated
with the securities before investments

(iii)

Credit Rated Public Financial Institutions/PSU
Bonds

(iv)

Credit Rated Municipal Bonds/Infrastructure
Bonds/Infrastructure Development Funds

Investment Restrictions

1.

The assets are not to be encumbered

2.

The investment exposure in an industry sector
(classification as per NIC classification) shall be restricted to 15% of all
NPS schemes portfolio of each PFM.

3.

The investment exposure in debt securities of a
sponsor group shall be restricted to 5% of the net worth of all the sponsor
group companies or 5% of the AUM of the concerned NPS scheme (Tier I and II
taken together), whichever is lower. The investment exposure in debt
securities of the investee company of sponsor group shall be restricted to 5%
of the net-worth of the concerned investee company of sponsor or 5% of the
AUM of the concerned NPS scheme (Tier I and II taken together), whichever is
lower.

4.

The investment in debt securities of a
non-sponsor group shall be restricted to 10% of the net worth of all
companies of a non- sponsor group or 10% of the AUM of the concerned NPS
scheme (Tier I and II taken together), whichever is lower. The investment in
debt securities of the investee company of non-sponsor group shall be
restricted to 10% of the net worth of the concerned investee company of a
non- sponsor group or 10% of the AUM of the concerned NPS scheme (Tier I and
II taken together), whichever is lower.

5.

Investment decisions should be taken by PF in the
best interest of subscribers with emphasis on safety, prudence, optimum
return, sound commercial judgement and avoiding funds to remain idle.

6.

Any moneys received on the maturity of earlier
investments reduced by obligatory outgoings shall be invested in accordance
with the investment pattern.

7.

In case of any instruments mentioned above, the
PF should take all steps to ensure that the interests of the subscribers are
not compromised towards this and amongst other steps the investment should be
under continuous monitoring and be reviewed from time to time to detect any
signal of impairment /downgrade in rating of the security and the PF should
take immediate steps to ensure that the interest of the subscriber are
protected.

8.

The investment should be made by the PF through a
Stock Exchange, or directly with other counterparties in respect of
Government Securities and other debt instruments at the best possible rate
available at the material time of transactions. The PF shall not purchase or
sell securities through any broker (other than an associate broker) which is
an average of 5% or more of the aggregate purchases and sale of securities
under all schemes, unless the PF has recorded in writing the justification
for exceeding the limit of 5% and reports of all such investments are sent to
the Trustees on a quarterly basis. Provided that the aforesaid limit of 5%
shall apply for a block of three months. The PF shall not utilise the
services of the sponsor or any of its associates, employees or their
relatives, for the purpose of any securities transaction. A PF may utilise
such services only after obtaining prior permission of the Trustees.

9.

NPS Funds shall not be used by the PF to buy
securities/bonds held in its own investment portfolio or any other portfolio
held by it or in its subsidiary or in its Sponsor.

10.

The PF shall buy and sell securities on the basis
of deliveries and shall in all cases of purchase, take delivery of relative
securities and in all cases of sale, deliver the securities and shall in no
case put itself in a position whereby it has to make short sales or carry
forward transactions or engage in badla finance (carry forward).

11.

The PF may enter into derivatives transactions,
if it is in the interest of the subscribers’, only for the purpose of hedging
and portfolio balancing, in accordance with the guidelines issued by
SEBI/RBI. These derivatives transactions should be entered into only in
recognised stock exchange. Credit default Swap are also approved derivatives
for the purpose.

12

The PF shall enter into transactions relating to
Securities only in dematerialised form. The PF shall, for securities
purchased in the non depository mode get the securities transferred in the
name of the NPS Trust on account of the Scheme.

13.

Transfer of investments from one Scheme to
another Scheme in the same PF, shall be allowed only if:-

13.1

such transfers are made at the prevailing market
price for quoted Securities on spot basis (Explanation: spot basis shall have
the same meaning as specified by Stock Exchange for spot transactions)

13.2

the Securities so transferred shall be in
conformity with the investment objective of the Scheme to which such transfer
has been made.

14.

Pending deployment of funds of a scheme in
securities in terms of investment objectives of the scheme, funds may be
invested in short-term deposits of schedule commercial banks or in call
deposits or in short term money market instruments or other liquid instruments
or liquid schemes of mutual funds not exceeding a limit of 10% of the scheme
corpus on temporary basis only.

15.

The PF may alter these above stated restrictions
from time to time to the extent the PFRDA Regulations change, so as to permit
the Schemes to achieve their investment objective.

3.

Investment Objectives

The investment objectives for the three asset
classes are outlined below:

3.1

Asset class E

3.1.1

Benchmark – the performance of the scheme will be
measured by reference to the total performance (dividends reinvested) of the
BSE Sensex and NSE Nifty 50 Index.

3.1.2

Performance objective – the investment objective
is to optimise returns while investing in the chosen index over a rolling
annual basis.

3.2

Asset class G

3.2.1

Performance objective – the investment objective
is to optimise returns.

3.2.2

Risk – It is expected that the PF will be able to
identify and justify the additional risks relative to the return, while
managing the portfolio on an absolute return basis.

3.3

Asset class C

3.3.1

Performance objective – the investment objective
is to optimise returns.

3.3.2

Risk – It is expected that the PF will be able to
identify and justify the additional risks relative to the return, while
managing the portfolio on an absolute return basis.

4.

Allocation of funds across asset class for
“Auto choice”

The methodology for allocating funds in the three
asset classes are outlined in the table below which illustrates the
allocation of each asset class for “Auto Choice” option based on
age of the investor:-