The Pension Fund Regulatory and Development Authority (PFRDA) issued a circular last month that lays out the rules for informing about the risk profiles in the National Pension Scheme (NPS) investments. The NPS will indicate the risk profile to subscribers from 15 July to help them make informed decisions concerning the contributions to different asset classes.
Funds Eligible for Risk Profiling
According to the PFRDA circular, the authority has decided that the pension funds managing Tier l and Tier ll schemes of assets classes equity, government securities, corporate debt and scheme A should disclose and maintain the risk profile of the schemes.
There are six risk levels for the schemes – low risk, low to moderate risk, moderate risk, moderately high risk, high risk, and very high risk. There will be a quarterly review of the risk profiles, and the Pension Funds’ websites will report the changes in risk profiles. The authority will communicate the changes in the risk profile to the NPS trust for updating on the NPS Trust’s website.
Where to Check Risk Profiling?
The pension funds will disclose the risk profiles of all the schemes on their websites within 15 days of each quarter’s close under the ‘Portfolio Disclosure’ section.
Debt Risk Profiling
The PFRDA circular stated that based on the conservative credit rating of the instrument, there would be an assignment of credit risk values ranging from zero to 12. A credit value of zero indicates the highest credit quality, while a credit value of 12 indicates the lowest credit quality.
The credit risk score of the portfolio would be arrived at by aggregating the product of the securities’ credit risk value and the portfolio’s allocation. The PFRDA circular will be effective from 15 July 15 2022, for all existing schemes in categories C, G, E, and A.
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