The Pension Fund Regulatory and Development Authority (PFRDA) has tightened the framework governing investment schemes under the National Pension System (NPS). The move makes scheme names, risk levels and performance easier for subscribers to compare.
As per the , pension funds have been given 30 days to rename existing Multiple Scheme Framework (MSF) schemes and bring schemes that span more than one equity category into a single prescribed category.
“Funds with more than two schemes in the same category will have 45 days to merge, subsume or restructure them,” the circular said.
The changes are significant for the , as they are significant due to some scheme names and structures may change. However, this does not mean that every subscriber will have to immediately switch investments.
The PFRDA said it has created a standardised classification system for MSF schemes based on their equity allocation.
The idea is to make it easier for investors to understand the level of equity exposure and therefore the broad risk they are taking.
As per the classification, the Category A has 80-100 per cent equity — aggressive growth, very high risk. Category B comes with 60-80 per cent equity — high growth, high risk; Category C with 35-60 per cent equity — balanced growth, medium risk.
Further, Category D has 10-35 per cent equity — conservative, and Category E with 0-10 per cent equity — debt-oriented.
As per the PFRDA, the scheme cannot have an equity mandate covering multiple categories.
A scheme cannot have an equity range that moves between Category B and Category C. It must fit within one prescribed category.
Common name format for MSF schemes:
The pension fund authority also prescribed a common naming format for MSF schemes which will include the pension fund’s abbreviation, “NPS”, the relevant category code and the scheme name.
Further, for Tier II, “Tier 2” will be added at the end of the name.
PFRDA asked pension funds to rename existing MSF schemes within 30 days of the August 28 circular. Schemes that currently have equity mandates covering multiple categories must also be modified, restructured or reclassified within the same period.