The Pension Fund Regulatory and Development Authority (PFRDA), the body regulating pension fund in India, in view of the huge corpus amount being invested in equity mutual funds, has restricted investment in such vehicles to a maximum of 5% of the total corpus. The notification was released in the regulator's circular dated August 20. The rule shall also be applicable in case of new investments.
To offer pension fund managers enhanced flexibility, the regulator allowed investments in mutual funds after first letting them to engage in active management of the equity portfolio in the year 2015.
"We wanted to provide flexibility and an avenue for the fund managers to park the money while waiting for the right scrips," B.S. Bhandari, whole-time member (economics), PFRDA, is quoted as saying in a leading business daily.
The move is primarily said to impact Kotak Mahindra Pension Fund Ltd (KMPFL) as it has invested its entire equity portfolio via mutual funds. As per the company, under its equity portfolio Kotak has total assets under management worth Rs. 225 crore. National Pension System or NPS has a total of 8 pension fund managers.
"We have diluted about 50% of our mutual fund holding, but some mutual funds have an exit load, so we will wait for the exit load period to get over before redeeming the rest in the interest of the investors," said Sandeep Shrikhande, chief executive officer, Kotak Pension Fund.
LIC Pension Fund's equity portfolio also comprises investments in mutual funds. The fund's equity portfolio with total assets under management of Rs. 455.79 crore of the private sector NPS has now a reduced exposure to mutual funds of less than 4%, as per the funds' portfolio disclosure of August 31.