National Pension System (NPS) and Atal Pension Yojana (APY) subscribers alert! Here’s an important update for you.
The Pension Fund Regulatory and Development Authority (PFRDA) has released a new consultation paper proposing a ‘dual valuation framework’ for government securities held under pension funds.
The move aims to make your pension wealth more transparent and stable, reduce the impact of short-term market fluctuations on your NAV, and ensure long-term, steady growth of your retirement savings.
The consultation paper, dated October 17, 2025, proposes the adoption of a dual valuation framework (‘accrual’ and ‘fair market’) for long-dated government securities held in NPS/APY to achieve three key purposes:
First, it aims to depict stable and simplified pension wealth accumulation to subscribers during the accumulation phase.
Second, the objective is to reduce the impact of short-term interest rate volatility on scheme NAV, since such fluctuations do not materially affect subscribers during the accumulation phase.
Third, it will aim to align pension fund investments with long-term capital formation, boosting stakeholder confidence by funding productive, long-gestation infrastructure assets.
Main goal is to present pension wealth accumulations more clearly to subscribers
Overall, the framework aims to present pension wealth accumulations more clearly to subscribers while ensuring long-term financial stability and economic relevance.
Current method of evaluation of NPS performance
Currently, the investments held under NPS are ‘mark to market’ and the pension funds are mandated to declare scheme NAVs at the close of each working day.
In this scenario, the investment returns to subscribers are thus directly linked to the market conditions of each day and the performance of pension fund (in managing the scheme portfolios) gets adjudged for each day instead of a holistic evaluation of performance during the entire accumulation phase of the subscriber.
“Typically defined contribution pension plans have a long accumulation phase spanning between 20 to 40 years, and the method of valuing the investments plays a crucial role in depicting the pension wealth to a subscriber,” according to the consultation paper.
What are the challenges for PFRDA in terms of valuation?
Presently, the accounting and valuation guidelines issued by PFRDA prescribes fair valuation (mark-to-market) for all securities (equity, corporate bond, government securities) held in the scheme portfolios under NPS/APY.
This valuation norm is applied uniformly across all debt securities (corporate or government), regardless of their maturity profiles or the schemes/asset class in which these debt securities are held.
The challenges faced in terms of valuations are:
(i) Long-dated debt securities constitute a substantial portion of the scheme portfolios (Central Government, State Government, Corporate CG, NPS Lite, Asset Class ‘C’, Asset Class ‘G’), which are more sensitive to interest rate fluctuations.
(ii) Long-dated debt securities are relatively less liquid compared to debt securities with shorter durations.
(iii) The effects of short-term volatility in interest rates are ultimately passed on to subscribers through scheme NAVs, leading to unjust depiction of their pension wealth during the accumulation phase, which may undermine the system.
Invitation for stakeholder comments
The consultation paper is available on the PFRDA website. The PFRDA has sought feedback on the proposal from all stakeholders, including NPS participants, prospective subscribers, pension funds, industry experts, academia and the general public. Comments on the consultation paper must be submitted on or before 30th November 2025.