Budget 2015: Investment pattern for non-govt PFs, gratuity funds to be notified soon

NEW DELHI: The government will soon notify the new investment pattern for non-government provident funds, superannuation and gratuity funds allowing them to invest in infrastructure trusts besides enabling them to park 5-15% of their investible funds in equity and equity-related instruments.

The move is in line with the recommendations of the GN Bajpai-led committee set up to review the implementation of New Pension Scheme (NPS), and would provide long-term resources to productive sectors besides giving greater flexibility to subscribers to maximize their returns. The new investment pattern will kick in from April 1 this year.
"The revised investment pattern gives greater flexibility in terms of a wider variety of financial instrument as well as greater freedom to manage the portfolio in terms of newer instruments and greater flexibility in investment limits," a finance ministry official said.

With infrastructure creation as the key focus area of the Narendra Modi government, there is a huge requirement of resources to fund the development of infrastructure in the country.

The key changes under the new investment pattern include providing minimum and maximum limit, ranging from 45-50% for central government securities as against 55% allowed earlier, raising the investment ceiling in debt securities from up to 40% to up to 45%, providing new category instruments such as index funds, exchange-traded funds, debt mutual funds and instruments such as infrastructure debt funds, real estate investment trusts, infrastructure investment trusts, investment of minimum 5% and up to 15% in equity and equity-related instruments besides strengthening credit rating requirements for some financial instruments.

"By setting the minimum limit to investments in government securities, they will ensure that provident funds continue funding the government deficit. At the same time, they are helping diversify risks besides retaining the part of the investible funds as capital source of deficit financing," Amit Gopal, senior vice president of India Life Capital, said.

The investment pattern was last revised on August 14, 2008, and was to be made effective from April 1, 2009. Under the 2008 pattern, there was no provision of investment in exchange-traded funds, index funds, asset-backed securities, real estate units and infrastructure investment trusts.

The Union Budget of 2013-14 had said that the list of eligible securities in which pension funds and provident funds may invest will be expanded to include ETFs, debt mutual funds and assetbacked securities. Subsequently, a committee on investment pattern was constituted by the finance ministry under the chairmanship of Bajpai.