NPS Allowed To Invest In Short Term Debt, PSU Debt ETFs

The Pension Fund Regulatory and Development Authority (PFRDA) has now allowed the National Pension System (NPS) corporate debt funds to invest up to 10 percent of their assets in debt with residual maturity below three years. Previously, only higher maturity corporate debt was permitted.

The pension regulator has also stipulated that such short-term debt must be AAA-rated by at least two rating agencies.

The PFRDA has also allowed pension funds to invest up to 5 percent of their assets in public sector units' (PSUs) debt ETFs such as Bharat Bond ETFs. Two new variants of Bharat Bond ETFs are scheduled to open for public issue on 14 July 2020.

Further, the pension regulator has hiked maximum allocation to money market instruments in pension funds from 5 percent to 10 percent in certain types of pension funds.

Apart from this, PFRDA has also hiked the maximum limit for money market instruments, including liquid funds, in the NPS from 5 percent to 10 percent, which will apply to equity funds of NPS (all citizens) tier I and tier II apart from corporate and government bond funds of NPS tier I but not other plans such as central or state government.

The changes in investment guidelines will provide NPS managers with the flexibility to opt for lower maturity profile and reduce interest rate change risk.

These changes apply to corporate bond funds for all NPS variants such as central government plan, state government plan, corporate plan and all citizens model.