More pension money can now flow to F&O segment

MUMBAI: The Pension Fund Regulatory and Development Authority (PFRDA) has eased restrictions on National Pension Scheme fund managers regarding investments by private sector employees, potentially broadening the scope of returns.

Fresh accretions can go into stocks in the futures and options (F&O) segment, PFRDA announced on Tuesday. Until now, such money going into equity was allocated in line with the 50-stock Nifty’s composition.

NPS fund managers handling money from government employees already had the freedom to do this, with the same caveat — that this only applied to fresh accretions.

Apart from limiting the investment to stocks in the F&O segment, the companies need to have a market cap of more than Rs 5,000 crore, said Sumit Shukla, CEO, HDFC Pension Funds.

There are 158 scrips in the F&O segment, which is characterised by high liquidity.

Shukla welcomed the move. “India is a growing economy with a large number of very good companies outside the Nifty universe,” Shukla said. “This move will increase the ability of the fund manager to invest in them and, thereby, generate better returns for long-term investors.”

NPS investments are long-term with a 5-20-year holding period. Manoj Nagpal, CEO of Outlook Asia Capital, was critical of the decision to restricting F&O exposure to only new additional money.

“Only the fresh accretion of funds will be actively managed. That means a part of the scheme will be actively managed, while the remaining part will be passively managed,” he said.

The industry is, meanwhile, hoping PFRDA will increase fund management expenses. “The 0.01% expense ratio for the NPS funds is not just low, it is negligible,” said Balram Bhagat, CEO, UTI Retirement Solutions.

Shukla of HDFC Pension Funds said, “The regulator is seized of the cost structure problem and we are hopeful it will get corrected soon.” However, any increase in fund management fees will increase the costs for investors. To be sure, this can rise even without directly increasing the expense ratio.