The Pension Fund Regulatory and Development Authority (PFRDA) issued a circular last month that lays out rules on informing investors about the risk profiles in NPS investments. This will help NPS subscribers to make more informed decisions regarding the allocation of their contributions to various asset classes.
According to a circular dated May 12, 2022, “It has been decided by the Authority that Pension Funds managing the Tier I & Tier II Schemes of Assets Classes Equity (E), Corporate Debt (C), Government Securities (G) and Scheme A, shall maintain and disclose risk profiling of the Schemes in accordance with the following guidelines.
The Risk profiling will have following six levels of risk for the schemes:
- Low Risk
- Low to Moderate Risk
- Moderate Risk
- Moderately High Risk
- High Risk, and
- Very High Risk
Where to check risk profiling
The risk profiling will be disclosed on the websites of the respective Pension Funds under the ‘Portfolio disclosure’ section within 15 days of the end of each quarter-ending month.
Funds eligible for risk profiling
The Authority has ruled that Pension Funds managing Tier I and Tier II Asset Classes Equity (E), Corporate Debt (C), Government Securities (G), and Scheme A must keep and disclose risk profile of the Schemes.
Debt risk profiling
According to the circular, “Based on the conservative credit rating of the instrument, the credit risk values ranging from 0 to 12 shall be assigned. A credit value of 0 indicates the highest credit quality, while credit value of 12 indicates lowest credit quality. The credit risk score of the portfolio shall thus be arrived at by aggregating the product of credit risk value of the securities and their allocation in the portfolio.”
The NPS Trust will review risk profiling on a quarterly basis, and any modifications will be disclosed on the websites of the Pension Funds as well as conveyed to the NPS Trust for updating.
The risk level of the plans as of each year’s March 31 and the number of times the risk level has changed throughout the year will be published on the websites of pension funds.
This circular will be effective on July 15, 2022, for all existing schemes in categories E, C, G, and A. Pension Funds may, however, choose to implement the provisions before the effective date.
