In what would give greater options and flexibility to subscribers of the National Pension System, a high-level committee has suggested for removing the cap on equity investments as well as new asset classes including real estate investment trusts (REITs) and alternative investment trusts.
Calling for a move to a “prudent investor regime” from the current directed investment regime over a six-year period and three phases, the expert committee led by former Sebi chairman GN Bajpai to review investment guidelines for NPS schemes in private sector has called for ultimately removing the sectoral caps on asset classes for investments and only having a negative list of assets and some prudential ceilings for risky assets.
“The committee suggests gradual easing of investment exposure patterns with the aim of eventual alignment of Fund Management of entire Pension Sector. The current boundaries of directed investment should be shrunk and more play allowed to individual fund managers,” said the report submitted to the Pension Fund Regulatory and Development Authority last month.
The NPS has cumulative assets under management worth Rs 83,917.12 and 91,21,588 subscribers by April 30, 2015.
Sources said that the PFRDA is examining the report. “It is under active consideration. But it has suggested a paradigm shift and so will have to be implemented in a piecemeal manner and a lot of preparatory work will have to be done,” said a senior government official.
While the current investment pattern for the NPS for private citizens allows for an up to 50 per cent exposure to equities, the Committee’s roadmap under which this would be increased to 75 per cent in the second phase and up to 100 per cent in the third phase. There are no such caps for asset classes of government securities and other fixed income instruments, where investors can allocate their entire savings.
However, the official said that the proposal will have to be carefully examined and a call on allowing 100 per cent investments in equities will have to be taken based on the situation of the capital markets.
The Bajpai committee has also called for ‘expanding the universe of investment of equity to NSE 100’.
Recommending a shift from fixed income instruments, the panel has further recommended harmonisation of the investment guidelines for private and government sector as well as permitting up to 50 per cent investment in equities for government employees as well.
At present, the government servants can allocate up to 15 per cent of their contributions to the NPS in equities. New asset classes including REITs, infrastructure REITs, AIFs, Indian Depository Receipts, gold ETFs and reverse and repo reverse should also be permitted with a cap of five per cent of total allocations, the panel has suggested.
Only for private sector
* It has also suggested that fund managers should be permitted to market the NPS product and consequently a higher fees for them.
* Further, the committee has also pitched for providing a minimum guaranteed return to investors through inflation indexed bonds or a credit guarantee fund.