Master Circular on Investment Guidelines for NPS/APY Schemes- Central Government, State Government, Corporate CG, NPS Lite, Atal Pension Yojana and APY Fund Scheme

PFRDA/MASTERCIRCULAR/2023/01/PF-01

Date: 18th August, 2023

MASTER CIRCULAR

To

• CEOs of All Pension Funds & NPS Trust

Dear Sir/Madam,

SUBJECT: Master Circular on Investment Guidelines for NPS/APY Schemes- Central Government, State Government, Corporate CG, NPS Lite, Atal Pension Yojana and APY Fund Scheme.

1. This circular is being issued in exercise of powers of the Authority under sub-clause (b) of sub-section (2) of Section 14 read with Section 23 of the PFRDA Act, 2013 and sub-regulation (1) of Regulation 14 of PFRDA (Pension Fund) Regulations, 2015 as amended from time to time.

2. This master circular supersedes the earlier circular nos. PFRDA/2021/28/REG-PF/2 dated 20.07.2021, PFRDA/2021/32/REG-PF/4 dated 27.07.2021, PFRDA/2021/39/REG-PF/5 dated 16.09.2021, PFRDA/2021/45/REG-PF/07 dated 30.11.2021, PFRDA/2021/47/REG-PF/09 dated 30.11.2021, PFRDA/2022/09/REG-PF/01 dated 28.04.2022, PFRDA/2022/33/REG-PF/5 dated 18.11.2022, PFRDA/2022/35/REG-PF/7 dated 18.11.2022, PFRDA/2023/13/REG-PF/01 dated 20.04.2023 and letters no. PFRDA/16/3/29/0123/2017-REG-PF dated 15.03.2023 and is a consolidation of the aforementioned circulars/letters. The effective date of applicability mentioned in respective circulars/letters would remain unchanged.

3. The Investment Guidelines for NPS/APY Schemes viz. Central Government, State Government, Corporate CG, NPS Lite, Atal Pension Yojana and APY Fund Scheme are as under:

4. Inflows to the aforesaid Schemes will be invested in the permissible categories stated above in a manner consistent with the specified maximum permissible percentage amounts to be invested in each investment category, while also complying with such other restrictions as made applicable for various sub-categories of the permissible investments.

Inflows to the schemes shall be the sum of un-invested funds from the past and receipts like contributions to the schemes, dividend/interest/commission, maturity amounts/ sale proceeds of earlier investments etc., as reduced by redemptions and applicable charges.

5. At any given point of time the percentage of assets under each 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.

6. If for any of the instruments mentioned above, the rating falls below the minimum permissible 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.

7. 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.

8. The prudent investment of the inflows/funds within the prescribed pattern is the fiduciary responsibility of the Pension Fund. NPS Trust shall monitor the investment decisions of the Pension Funds with utmost due diligence.

9. The Pension Fund and NPS Trust will take suitable steps to control and optimize the cost of management of the schemes.

10. The NPS Trust and Pension Fund will ensure that the process of investment is accountable and transparent. It should be ensured that due diligence is carried out to assess risks associated with any particular asset before investment is made by the Pension Fund in that particular asset and also during the period over which it is held in the scheme. The requirement of ratings as mandated in this circular 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 Pension Fund.

11. For equity investments through stock brokers, the amount of brokerage that can be debited to the schemes shall not exceed 0.03% of the equity transaction amount inclusive of stamp duty and applicable taxes.

12. Investments in Initial Public Offer (IPO), Follow on Public Offer (FPO) and Offer for Sale (OFS) are permitted subject to fulfilment of the following conditions: -

a. Equity offering through IPO are proposed to be "listed" in BSE or NSE and full float market capitalization calculated at lower band of IPO issue price should be greater than the market capitalization of the 200th company as per the list of Top 200 stocks provided by NPS Trust (last published).

b. Shares offered under Follow on Public Offer (FPO)/Offer for Sale (OFS) should be listed on BSE or NSE and constituent in the list of Top 200 stocks provided by NPS Trust (last published).

c. Board approved Investment Policy of Pension Funds should contain detailed guidelines/procedure for investments in IPO. Investments in Equity Shares through IPO/FPO or OFS shall be reported to NPS Trust within 30 days from the date of investment.

d. In case a Pension Fund have invested through IPO and the prescribed market capitalization condition does not get fulfilled post listing of the IPO or it fails to be in the latest published list of Top 200 stock provided by NPS Trust, a time period of maximum one year from the date of listing shall be provided to the Pension Fund for making a decision on selling such shares.

13. The following restrictions/filters are being enforced to reduce concentration risks in the scheme investments:

(a) NPS Equity investments shall be restricted to 5% of the ‘paid up equity capital’* of all the sponsor** group*** companies or 5% of the total AUM under Equity portfolio, whichever is lower, in each respective scheme and 10% of the ‘paid up equity capital’ of all the non-sponsor group companies or 10% of the total AUM under Equity portfolio, 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.

**‘Sponsor’ shall mean an entity described as “Sponsor” under Pension Fund Regulatory and Development Authority (Pension Fund) Regulations, 2015 and subsequent amendments thereto.

***‘Group’ means two or more individuals, association of individuals, firms, trusts, trustees or bodies corporate, or any combination thereof, which exercises, or is established to be in a position to exercise, significant influence and / or control, directly or indirectly, over any associate as defined in Accounting Standard (AS), body corporate, firm or trust, or use of common brand names, Associated persons, as may be stipulated by the Authority.

Explanation: Use of common brand names in conjunction with other parameters of significant influence and / or control whether direct or indirect shall be reckoned for determination for inclusion as forming part of the group or otherwise.

All Pension Funds shall publish on their respective website a list of their group companies and those of their sponsor.

(b) NPS Debt investments have been restricted to 5% of the ‘net-worth’^ of all the sponsor group companies or 5% of the total AUM in debt instruments portfolio (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 instruments portfolio (excluding Govt. securities) whichever is lower, in each respective scheme.

^Net Worth: Net worth will 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 shall be restricted to 15% of AUM under all Schemes managed by each Pension Fund as per Level-5 of NIC classification. Investment in scheduled commercial bank FDs would be exempted from exposure to Banking Sector.

(d) For investments made in Index Funds/ETF/Debt MF, the exposure limits under such Index Funds/ETF/Debt MF shall not be considered for compliance of the prescribed Industry Concentration, Sponsor/ Non Sponsor group norms under these guidelines.

(e) Investment exposure norms for InvITs/REITs shall be as under:

i. Cumulative Investments in Units and Debt Instruments of InvITs and REITs shall not exceed 3% of total AUM of the Pension Fund at any point of time.

ii. Pension Fund shall not invest more than 15% of the total outstanding debt instruments issued by single InvIT/REIT issuer.

iii. Pension Fund shall not invest more than 5% of the Units issued by a single InvIT/REIT issue.

14. The value of funds invested by Pension Fund in any mutual funds mentioned in any of the categories or ETFs or Index Funds shall be reduced from the respective scheme AUM before computation of investment management fees payable to them, to avoid double incidence of costs. However, investments made by Pension Funds in ETFs/Index Funds for the purpose of disinvestment of shareholding of the Government of India in body corporates, Bharat Bond ETF/Debt ETF issued by Government of India in respect of bonds issued by CPSEs, CPSUs, CPFIs and other Government organizations and all short duration mutual funds (liquid mutual fund, overnight fund ultra-short duration fund etc.) as permitted by SEBI, would be eligible for payment of investment management fee.

15. In APY Fund Scheme, there shall not be any deduction of NPS Trust charges/fee as the scheme is managed for a specific purpose.

16. Pension Fund making investments in the shares of body corporates listed on Bombay Stock Exchange (BSE) or National Stock Exchange (NSE), which are in top 200 stocks, would be required to adopt the list of stocks prepared by NPS Trust in this regard and NPS Trust would adhere to the following points while preparing the list:-

i. If a stock is listed on more than one recognized stock exchange, an average of full market capitalization of the stock on all such stock exchanges, will be computed;

ii. In case a stock is listed on only one of the recognized stock exchanges, the full market capitalization of that stock on such an exchange will be considered.

iii. The list of stocks under (i) and (ii) above, would be circulated by NPS Trust and the same would be updated every six months based on the data as on the end of June and December of each year. The list shall be circulated by NPS Trust within 5 calendar days from the end of the 6 months period.

iv. While preparing the single consolidated list of stocks, average full market capitalization of the previous six month of the stocks shall be considered. Subsequent to any updation in the list, Pension Funds would have to rebalance their portfolios (if required) in line with updated list, within a period of six months. The decision to hold such stocks in the portfolio shall have to be approved by the Investment Committee of the Pension Fund and also to be informed to the Board of Pension Fund. NPS Trust shall monitor the compliance of the above provision and inform PFRDA at regular interval.

17. Transfer of securities within schemes or inter scheme are allowed only if such transfers are done at the prevailing market price for traded instruments or at the valuation price for non-traded instruments and the securities so transferred are in conformity with the investment objective of the scheme to which such transfer has been made. Such transfers may be allowed in following scenarios:

i. To meet liquidity requirement in a scheme in case of unanticipated redemption pressure

ii. To adjust securities received through corporate action.

The inter scheme transfers are allowed only on exceptional basis. The Pension Fund shall inform NPS Trust and Authority upon exercise of this option.

18. Pension Fund are permitted to keep securities as margin with the CCIL for margin requirements for investment in Government Securities and Triparty Repo (Dealing) System (TREPS).

19. For National Pension Scheme Tier II - Tax Saver Scheme, 2020 (NPS-TTS) which is available for subscription only by Central Government employees, the following investments limits will apply;

• this limit shall be applicable only after the scheme corpus reaches Rs 5 crore.

Yours sincerely,

(Mono MG Phukon) Chief General Manager