Pension fund managers cannot invest more than 5 percent of total portfolio into equity mutual funds
Pension fund managers of National Pension Scheme (NPS) cannot invest more than 5 percent in equity mutual funds (MF) from now.
Pension Fund Regulatory and Development Authority (PFRDA) has written to pension fund managers asking them to restrict the exposure to 5 percent of the total portfolio of the fund.
This will mean going forward, each of the securities will have to be reviewed and a blanket investment into an equity mutual fund will not be permissible.
Explaining the rationale behind the directive, Hemant Contractor, Chairman, PFRDA, told Moneycontrol: “The idea was that pension fund managers to use their investment skills to choose securities and invest in them, rather than just putting in money into mutual funds. Fund managers were putting money into equity mutual funds and just letting it remain there. We wanted them to play a more proactive role and choose securities properly and make the equity contribution accordingly.”
He added that equity MFs was being considered as an easier investment option and some fund managers were investing 10-15 percent in equity mutual funds.
“We wanted to discourage that,” he added.
There was no such limit applicable earlier and pension fund managers were freely investing a large proportion of their equity portfolio into such MF schemes.
Pension fund managers invest into a range of instruments in the equity and debt segment to have a diversified portfolio and offer risk-weighted returns to customers.
PFRDA recently allowed NPS customers to invest upto 75 percent into equity instruments. Pension fund managers are responsible for allocating the money invested by customers into different instruments.
Here, instead of looking at securities and choosing between them based on the past performance and future prospects, pension fund managers were investing directing into equity MFs which relieved the PFMs of the responsibility of actively managing the funds and thereby save costs.PFM sources told Moneycontrol that considering that their portfolio size was smaller, it was a cost-effective option to invest into equity MFs.