The statutory body, Pension Funds Regulatory and Development Authority (PFRDA), has reportedly announced new norms on the valuation of securities in the National Pension System (NPS) schemes. The new guidelines will be with effect from 1 December 2019.
As per the new guidelines, the method of valuation in the case of debt securities has been changed from the previous matrix-based mode to a more rigid security-level assessment.
One of the primary reasons for the change in the valuation method was because debt securities could not be evaluated as per the market price on a precise day.
At present, the pension funds in the NPS scheme can be invested both in debt securities as well as direct equities.
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The conversion to a stringent individual security-level valuation from the previous matrix-based method, according to investment experts, will allow agencies to evaluate debt securities accurately.
Also, PFRDA has released new guidelines concerning debt securities which are downgraded below the investment grade.
In the case of debt securities which are well-performing with no track record of defaults and rated under the investment grade, the pension fund will be required to take a haircut of 25%.
However, in the case of securities with defaults and non-performing assets, the valuation agency will have to evaluate the price with an indicative matrix which in turn will be utilised by the pension funds to decide its take on the haircut.
For any clarifications/feedback on the topic, please contact the writer at viswanathan.v@cleartax.in
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