National Pension System: All NPS schemes will now indicate risk profile

To enable National Pension System (NPS) customers to make informed decisions about their contribution allocations across different asset classes, pension funds are required to publish risk profiling of all schemes on their website within 15 days from the end of each quarter. The Pension Fund Regulatory and Development Authority (PFRDA) has issued guidelines for six levels of risk – low, low to medium, medium, medium high, high and very high.

Based on the characteristics of the scheme, the pension fund needs to determine a risk level for the seven schemes. For loans (corporate bonds and government securities), the risk profiling will be on credit risk, interest rate risk and liquidity risk. For equity, the parameters of risk profiling will be market capitalization, volatility and impact cost.

Risk profiling for loans

Based on the conservative credit rating of the instrument, a credit risk value of 0 to 12 should be determined. A credit risk of 0 indicates the highest credit quality whereas a credit value of 12 indicates the lowest credit quality. The credit risk value of the portfolio’s credit risk securities and their allocation to the portfolio will be combined. The value of the loan instruments considered for the calculation of assets under management will be based on a fair value.

The credit risk of government securities / state development loan / loan securities for tripartite repo will be 0. For AAA it would be 1; AA + it will be 2 and so on. For interest rates, the risk will be assessed using the macro term of the loan portfolio. The liquidity risk of the scheme will be measured considering the listing status, credit rating and structure of the loan instrument.

Risk profiling for equity

For equities, risk profiling will be done on parameters like market capitalization, volatility and impact cost or liquidity. The list of top 100 stocks and beyond the top 100 will be defined by NPS Trust on a semi-annual basis. The market capitalization of the stocks considered for valuation will be the average of the market capitalization of the last six months. Instability Weighted average of each security instability value (<1% হবে 5 এবং > 1% will be based on 6).

For units consisting of units of mutual fund schemes, the value of the schemes will be determined on a per-meter basis. For example, less risk will be allocated 1; Lower to Medium 2 will be allocated; Medium will be allocated 3; Will be medium high 4; High will be 5 and very high will be 6. Investing in REITs and InvIT will be given a score of 7 from a risk perspective. Investing in Alternative Investment Funds (AIFs) will be given a score of 8 from a risk perspective.

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