Detailed View of New Pension Scheme (NPS) (2)

Continued from last Post.....

Table for Lifecycle Fund*

Age	Asset Class E	Asset Class C	Asset Class G
Up to 35 years	50%	30%	20%
36 years	48%	29%	23%
37 years	46%	28%	26%
38 years	44%	27%	29%
39 years	42%	26%	32%
40 years	40%	25%	35%
41 years	38%	24%	38%
42 years	36%	23%	41%
43 years	34%	22%	44%
44 years	32%	21%	47%
45 years	30%	20%	50%
46 years	28%	19%	53%
47 years	26%	18%	56%
48 years	24%	17%	59%
49 years	22%	16%	62%
50 years	20%	15%	65%
51 years	18%	14%	68%
52 years	16%	13%	71%
53 years	14%	12%	74%
54 years	12%	11%	77%
55 years	10%	10%	80%

*In case of Auto Choice, reallocation among the asset classes shall take place on the date of birth of the subscriber. Net Asset Value (NAV) will be released on a regular basis so that you may be able to take informed decisions.

The window for scheme change preference shall remain open throughout the year. The subscriber shall be allowed to exercise the choice only once, at any time during the financial year.

Can a subscriber change the scheme preference?

A subscriber can change his existing Pension Fund Manager (PFM), the investment option (Active or Auto Choice) as well as the asset allocation ratio (allocation among asset class – Equity/Corporate Instrument/Government Securities) once in a Financial Year. This scheme preference will be applicable to the existing pension corpus as well as to the prospective subscriptions. The subscribers intending to exercise the choice shall have to present the request in the prescribed form No. UOS – S3 to the POP-SP along with a copy of PRAN card.

Investment Guidelines

The PFM will manage the following three separate schemes, each investing in a different asset class, being: 

Asset class E (equity market instruments) – The investment by an NPS participant in this asset class would be subject to a cap of 50%. This asset class will be invested in shares of the companies which are listed in Bombay Stock Exchange or National Stock Exchange and on which derivatives are available or are part of BSE Sensex or Nifty Fifty Index.

Asset class G (Government Securities) – This asset class will be invested in Central Government Bonds and State Government Bonds.

Asset class C (credit risk bearing fixed income instruments) –

(i)Fixed Deposits of not less than 365 days of scheduled commercial banks with following filters:

a) Net worth of at least Rs.500 crores and a track record of profitability in the last three years.

b) Capital adequacy ratio of not less than 9% in the last three years. Net NPA of under 5% as

a percentage of net advances in the last year

c) List to be reviewed half-yearly

(ii)(a) Credit rated Debt securities with maturity of not less than three years tenure issued by

Bodies Corporate including scheduled commercial banks and public financial institutions [as

defined in Section 4 (A) of the Companies Act]

(b) Provided that the investment in this category is made in instruments having an

investment grade rating from at least two credit rating agencies. Apart from ratings by

agencies, PFM shall undertake their own due diligence for assessment of risks associated

with the securities before investments

(iii) Credit Rated Public Financial Institutions/PSU Bonds

(iv) Credit Rated Municipal Bonds/Infrastructure Bonds/Infrastructure Debt Funds.

The detailed investment guidelines issued by PFRDA are available on http://www.pfrda.org.in/

What are the Risks that the subscriber’s investments are exposed to?

Investments

1. There are no guarantees on investment. NPS is a defined contribution plan and the benefits would depend upon the amounts of contributions invested and the investment growth up to point of exit from NPS.

2. You may seek professional advice to assist you in planning your finances. However, this would be your own decision and PFRDA would not be responsible for any consequences

3. Past performance of the Fund Manager does not guarantee future performance of the investment.

4. The name of the Fund does not in any manner indicate either the quality of the investment scheme or its future prospects and returns.

5. All investments are subject to market risks and there is no assurance or guarantee that the investment objectives shall be achieved.

6. Investment involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal.

7. Value of your investment in the NPS may go up or down depending upon the forces and factors affecting financial markets in general.

8. Tax laws may change, affecting the Return on Investment (ROI).

EXPLANATORY NOTE ON SPECIFIC RISKS IN DEBT MARKETS AND CAPITAL MARKETS

The following is an illustrative list of risks which may be faced by investing in financial markets:

Risks associated with Debt / Money Markets (i.e. Markets in which Interest bearing Securities or Discounted Instruments are traded)

· Credit Risk: Securities carry a Credit risk of repayment of principal or interest by the borrower. This risk depends on micro-economic factors such as financial soundness and ability of the borrower as also macroeconomic factors such as Industry performance, Competition from Imports, Competitiveness of Exports, Input costs, Trade barriers, Favorability of Foreign Currency conversion rates, etc. Credit risks of most issuers of Debt securities are rated by Independent and professionally run rating agencies. Ratings of Credit issued by these agencies typically range from “AAA” (read as “Triple A” denoting “Highest Safety”) to “D” (denoting “Default”), with about 6 distinct ratings between the two extremes. The highest credit rating (i.e. lowest credit risk) commands a low yield for the borrower. Conversely, the lowest credit rated borrower can raise funds at a relatively higher cost.

· Sovereign risk: The Government raises money to meet its Capital and Revenue expenditure by issuing Debt or Discounted Securities. Since payment of interest and principal amount has a sovereign status implying no default, such securities are known as securities with sovereign credit. For domestic borrowers and lenders, the credit risk on such Sovereign credit is near zero and is popularly known as “risk free security” or “Zero- Risk security”. Thus Zero-Risk is the lowest risk, even lower than a security with “AAA” rating and hence commands a yield, which is lower than a yield on “AAA” security.

  Price-Risk or Interest-Rate Risk: From the perspective of coupon rates, Debt securities can be classified in two categories, i.e., Fixed Income bearing Securities and Floating Rate Securities. In Fixed Income Bearing Securities, the Coupon rate is determined at the time of investment and paid/received at the predetermined frequency. In the Floating Rate Securities, on the other hand, the coupon rate changes - ‘floats’ - with the underlying benchmark rate, e.g., MIBOR, 1 yr. Treasury Bill. Fixed Income Securities (such as Government Securities, bonds, debentures and money market instruments) where a fixed return is offered, run price-risk. Generally, when interest rates rise, prices of fixed income securities fall and when interest rates drop, the prices increase. The extent of fall or rise in the prices is a function of the existing coupon, the payment frequency of such coupon, days to maturity and the increase or decrease in the level of interest rates. The prices of Government Securities (existing and new) shall be influenced only by movement in interest rates in the financial system. Whereas, in the case of corporate or institutional fixed income securities, such as bonds or debentures, prices are influenced not only by the change in interest rates but also by credit rating of the security and liquidity thereof.

· Reinvestment Risk: Investments in fixed income securities may carry reinvestment risk as interest rates prevailing on the interest or maturity due dates may differ from the original coupon of the bond. Consequently the proceeds may get invested at a lower rate.

· Liquidity Risk: The corporate debt market is relatively illiquid vis-a-vis the Government securities market. There could therefore be difficulties in exiting from corporate bonds in times of uncertainties. Liquidity in an option therefore may suffer. Even though the Government Securities market is more liquid compared to that of other debt instruments, on occasions, there could be difficulties in transacting in the market due to extreme volatility or unusual constriction in market volumes or on occasions when an unusually large transaction has to be put through.

· Prepayment Risk: In the event of prepayments, investors may be exposed to changes in tenor and yield. Also, any Charge off’s would result in the reduction in the tenor of the Pass through Certificates (PTC’s).

Risks associated with Capital Markets or Equity Markets (i.e. Markets in which Equity Shares or Equity oriented instruments are issued and traded)

· Price fluctuations and Volatility: Investments are subject to market and other risks and there can be neither a guarantee against loss resulting from an investment in the NPS nor any assurance that the objective of the NPS shall be achieved. The NAV of the Units issued under the NPS can go up or down because of various factors that affect the capital market in general, such as, but not limited to, changes in interest rates, Government policy and volatility in the capital markets. Pressure on the exchange rate of the Rupee may also affect security prices.

· Liquidity Risks: Liquidity in Equity investments may be affected by trading volumes, settlement periods and transfer procedures. These factors may also affect the PFM’s ability to make intended purchases/sales, cause potential losses to the investments and result in the PFMs missing certain investment opportunities.

There will be a time lag between the time you deposit Cash/Demand draft/cheque/ Electronic Clearing System (ECS) with the POP-SP and the time of credit of units to the Permanent Retirement Account of the subscriber, which may range upto 15 working days at the time of initial registration and upto 7 working days for subsequent contributions. PFRDA may impose penalties on intermediaries in case of delay beyond this period.



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