The valuation will reflect the realizable value of the securities. Till now, mark-to-market was done for valuation of NPS securities
In order to make investments in National Pension System (NPS) transparent and efficient, Pension Fund Regulatory and Development Authority (PFRDA) has revised the guidelines for valuation of securities under NPS schemes.
Valuation of securities held under the NPS schemes is undertaken by the pension fund regulator to arrive at the scheme-wise net asset value (NAV) at the end of the day at which subscriber transactions such as purchase /redemption /switch of units are done. At present, mark-to-market is done for valuation of NPS securities.
In a circular, the pension fund regulator has underlined that the valuation of investments will be based on the principles of fair valuation, which means that the valuation will reflect the realisable value of the securities or assets. The pension funds will value the assets at fair value at all times by following the valuation guidelines issued by PFRDA and the third-party valuation services facilitated by NPS Trust.
For equity-related instruments and exchange traded funds, the valuation methods of securities traded on valuation day will be as per the closing price of the principal stock exchange. In case, it is not traded on the principal stock exchange, then the closing price on the secondary stock exchange will be considered.
When a security is not traded on any stock exchange on a particular valuation day, the value at which it was traded on the principal stock exchange or secondary stock exchange at the previous day will be used, provided such date is not more than 30 days prior to valuation date. In case trading is suspended up to 30 days, then the last traded price will be considered for valuation of that security. If an equity security is suspended for more than 30 days, then the valuation may be determined on case-to-case basis in consultation with pension funds, NPS Trust with prior approval of the regulator.
Index funds will be valued at latest NAV available on AMFI website. At present, the previous day’s scheme NAVs are being considered as mutual fund houses declare NAV at 9 pm and pension funds cut off time for NAV declaration is 8 pm.
For exchange traded funds, the valuation will be as per the closing price of the day of the respective stock exchange. For valuation of rights, until the right shares are traded, each right share will be valued as ex-rights price minus rights offer price. In case the rights price is higher than the ex-rights price, then the rights will be valued at nil.
In case of demerger, if the shares of all resultant entities are traded immediately on de-merger, they would be valued at respective traded prices at exchange. In case shares of only one company are listed and traded on de-merger, then the traded shares are to be valued at traded price.
In case of a merger, when company A is merged with company B and company B continues to be listed, the proportionate shares allotted of B company against company A will be valued at the closing price of company B on the stock exchange. When company A and company B are merged to form company C, the value of pending listing company C will be the total valuation price of company A and company B before the ex-date till the new entity company C is listed and traded on the stock exchange.
Investing in overnight funds
PFRDA has allowed pension funds to invest in overnight funds and all short duration funds as permitted by Sebi under short-term debt instruments and related instruments. It will be applicable to central and state government schemes, corporate, NPS Lite and Atal Pension Yojana.