NPS to gain most from 15% equity window

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The first—and, in all likelihood, the only retirement fund set to benefit from the finance ministry’s new investment pattern for non-government provident funds (PFs) allowing equity investments up to 15%—will be the New Pension Scheme (NPS) for government employees. The NPS is already the only large pension fund utilising the 5% equity cap, as the Employees’ Provident Fund Organisation (EPFO) is yet to accept the January 2005 investment pattern that opened up the equity option for PFs.

Once the Pension Fund Regulatory & Development Authority Bill becomes law, government employees under the NPS will be empowered to pick their own fund managers and portfolio allocations. Pending passage of the Bill, the accumulations of around 2.85 lakh central government employees who joined the civil services after January 1, 2004, are being invested on the basis of the investment pattern for non-government PFs like EPFO and company-run PF trusts.

Fund managers appointed to invest NPS contributions by the PFRDA, who were handed over accumulated funds of nearly Rs 1,500 crore this April, have already invested Rs 75 crore on the stock market under the existing 5% cap. “We are already utilising the 5% investment window for stocks. We will avail of the new investment options, including the 15% (equity) option, as well,” PFRDA chairman Dhirendra Swarup told FE.

The new pattern will allow managers to invest at least Rs 250-300 crore in equities once the guidelines kick in on April 1, 2009. Except the NPS, it is unlikely that any other retirement funds will gain from the flexibility under the new investment pattern. The labour ministry will find it difficult to convince the EPFO’s central board of trustees to okay the new pattern, just as it couldn’t implement the 5% option.

While EPFO covers a bulk of the organised sector workforce, some employers prefer to set up their own trusts after seeking a special exemption from the EPFO in order to give employees more efficient services than the government-run monolith. These trusts, however, have to report all trans actions to the regional PF commissioner periodically and stay within the EPF-approved norms. This means that until the EPFO accepts the new investment pattern, none of the 2,500-odd exempt company-run PF trusts, with over Rs 70,000 crore in their coffers, can exercise it either.