Lok Sabha Question No. 4074 (UNSTARRED), answered on 2019-01-04
Subject: NPS Investment in Equities
Ministry: FINANCE
Asked by: PONGULETI SRINIVASA REDDY

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES

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## LOK SABHA UNSTARRED QUESTION NO. 4074 TO BE ANSWERED ON JANUARY 4, 2019/PAUSHA 14, 1940 (SAKA) NPS INVESTMENT IN EQUITIES

4074. Shri Ponguleti Srinivasa Reddy

Will the Minister of FINANCE be pleased to state:

- a) whether the members of the National Pension System (NPS) propose to opt for higher investments in equities  as  well  as  part  of  their  retirement  savings  in  new  asset  classes  such  as  real  estate  and infrastructure investment  trusts, mortgage-backed  securities and  alternative investment  funds registered with the stock market regulator and if so, the details thereof;
- b) whether a new life-cycle fund with equity allocation of 25 per cent at the age of 35 years is being introduced for those with a conservative outlook to investing; and
- c) if so, the details and the present status thereof?

## ANSWER

The Minister of State in the Ministry of Finance (Shri Shiv Pratap Shukla)

(a)  As  informed  by  PFRDA,  the  existing  investment  guidelines  dated  03.06.2015  issued  by  the Pension  Fund  Regulatory  and  Development  Authority  (PFRDA)  for  National  Pension  System (NPS), (applicable to Scheme Central Government, Scheme State Government, Corporate Central Government Scheme, NPS Lite Scheme and Atal Pension Yojana), provides for investment under Equities  and  related  investment  with  an  upper  exposure  limit  of  15%.  Investment  under  Asset Backed, Trust Structured   and Miscellaneous   Investments is included with an upper exposure limit of 5% as under:

- a) Commercial mortgage based Securities or Residential mortgage based securities
- b) Units issued by Real Estate Investment Trusts regulated by SEBI
- c) Asset Backed Securities regulated by SEBI
- d) Units of Infrastructure Investment Trusts regulated by SEBI

Further,  for  the  subscribers  of  other  than  Government  Sector,  the  Alternative  Investment  Funds (AIF) is included in the Asset Class A for investment with an upper exposure limit of 5%, as pr existing Investment Guidelines. The permissible securities under Asset class A as per Investment guidelines for NPS Schemes for such subscribers are listed as under:

- a) Commercial mortgage based Securities or Residential mortgage based securities
- b) Asset Backed Securities regulated by SEBI
- c) Units issued by Real Estate Investment Trusts regulated by SEBI
- d) Units of Infrastructure Investment Trusts regulated by SEBI
- e) Investment in SEBI regulated 'Alternative Investment Funds' AIF (Category I and II only) as defined under the SEBI (AIF) Regulations, 2012
- f) Basel III Tier-1 bonds issued by scheduled commercial banks under RBI guidelines.

(b)  &  (c)  The  choice  of  life  cycle  funds  is  currently  not  available  to  subscribers  under  the Government Sector. However, on 06.12.2018, Government has approved the following proposals pertaining to choice of investment pattern for Central Government subscribers:

- i. Government  employees  who  prefer  higher  returns  may  be  given  the  options  of  the following two Life Cycle based schemes.
2.  Conservative Life Cycle Fund with maximum exposure to equity capped at 25% at the age of 35 years and tapering off thereafter (LC-25).
3.  Moderate Life Cycle Fund with maximum exposure to equity capped at 50% at the age of 35 years and tapering off thereafter (LC-50).
- ii.       Government employees who prefer a fixed return with minimum amount of risk may be given an option to invest 100% of the funds in Government securities (Scheme G).

The notification for the same is under process.

In  respect  of  subscribers  of  other  than  the  Government  Sector,  PFRDA  vide  circular  No. PFRDA/2016/8/PFM/03 dated 04.11.2016, had introduced two new Life Cycle Funds for private sector subscribers, in addition to the existing Moderate Life Cycle Fund (LC-50), to provide a preprogrammed diversification of assets in various asset classes as per the age and risk profile of the subscriber under NPS.

These two Life cycle funds  for  investment   are-  Aggressive Life Cycle Fund and Conservative Life Cycle Fund . In Aggressive Life Cycle Fund (LC-75), the maximum investment in  equity  is  restricted  to  75%  till  the  age  of  35  years  with  tapering  off  of  the  equity  exposure thereafter, whereas the same has been restricted to 25% in case of Conservative Life Cycle Fund (LC-25).

The existing Moderate Life Cycle Fund (LC-50) where the investment in  equity  is  restricted  to 50% is the default scheme.

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