NPS has just got more attractive

Changing the investment guidelines for some NPS schemes, the PFRDA has increased the limits on investments in debt securities by these schemes. This has been done to allow more flexibility for better scheme performance. "To provide flexibility to the pension funds to improve the scheme performance depending upon the market condition, it has been decided to increase the cap on Government Securities and related investments and short-term debt instruments and related investments by 5 percent each," states a Pension Fund Regulatory and Development Authority (PFRDA) circular dated March 25, 2019.According to the circular, these changes will be effective from April 1, 2019 and will apply only to the NPS - Central Government scheme (CG), State Government scheme (SG), Corporate Central Government (CG) scheme, Lite schemes of NPS, and Atal Pension Yojana. The cap on investment in various asset classes by the above-mentioned schemes has been revised as below: Asset Class Current caps on investments Caps on investments (with effect from April 1, 2019) Government Securities and related investments Up to 50% Up to 55% Debt Instrument and related investments Up to 45% Up to 45% Equity and related investments Up to 15% Up to 15% Asset-backed, trust structured etc. Up to 5% Up to 5% Short term debt instruments and related investments Up to 5% Up to 10% Source: PFRDA CircularThis change has been done "In order to bring stability in returns over the long run and improve the performance of the scheme, the PFRDA took this initiative" official sources said.Rating criteria for investments under NPS schemesIn a previous circular dated May 8, 2018, the PFRDA had revised the rating criteria for investments under NPS. Earlier, as per PFRDA investment guidelines for NPS, the investments under scheme/asset class C were to be made only in such securities which had minimum AA rating or equivalent from at least two credit rating agencies registered with SEBI.As per the circular dated May 8, 2018, the development of the corporate bond market is expected to benefit the investment universe as a whole by improving the liquidity and confidence in the securities market and especially the bond market where a sizable share of NPS contributions are invested. Consequently, the PFRDA had decided to allow the above mentioned NPS schemes to invest in corporate bonds/securities which have a minimum of 'A' rating or equivalent, subject to cap on the investment between A and AA- rated bonds to be not more than 10 percent of the overall corporate bond portfolio (Scheme/Asset class C) of the pension fund.The circular also required the pension funds to submit a quarterly statement on the investment made in the securities which have a minimum rating of 'A' and their performance including the downgrades in this category, if any, to NPS Trust for monitoring of such investments.

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