PFRDA proposes norms for pension funds

Subscribers may be offered four schemes; funds may be asked to disclose NAV on daily basis.

The Pension Fund Regulatory and Development Authority (PFRDA) has proposed to restrict investments by pension fund managers to listed equity shares and debt instruments, and to loans of micro finance institutions guaranteed by the Reserve Bank of India.

Debt papers issued by companies are also required to be rated as investment-grade by at least two agencies.

The draft rules, released for public comments, also proposed to offer four schemes to subscribers. The investment pattern will vary from 100 per cent government debt to a growth plan in which up to 50 per cent will be invested in equities. It has proposed that the net asset value (NAV) be provided on a daily basis.

The interim pension regulator has proposed to restrict a fund manager's participation in the points of presence (POP) and the central record-keeping agency (CRA) to 10 per cent. Audit firms will be barred from holding shares in the CRA.

The CRA will maintain the records for transactions, from a subscriber to a point of presence to a fund manager.

The draft has also said that banks, non-banking finance companies, insurance companies and brokers and entities registered with the Securities and Exchange Board of India will be allowed as POPs to which subscribers can make their contributions.

The PFRDA has also said that India Post, a departmental undertaking of the central government, could be granted registration through special regulations or accorded special treatment in the regulations for intermediaries.

The draft regulations come in the wake of demands by the parliamentary standing committee on finance, which has reviewed the PFDRA Bill, and the Left parties, which are opposed to the idea. They had sought that the draft guidelines be released before the Bill could be discussed in Parliament.

Besides, the PFRDA has said it will consider the net worth of entities, their track record, including the ability to provide guaranteed returns, the cost and fee structures and their customer base before granting licences to fund managers. It has, however, not specified the capital requirement and the number of fund managers to be allowed initially.

A pension fund manager will be required to make available investment database electronically. Separate details of each investment transaction during the last five years for each of its schemes have to be made available.

A POP will hold the amounts on behalf of a subscriber, on the explicit understanding that the subscription is immediately credited to the new pension scheme in a separate account or to an aggregating account.