The new investment pattern would come into force from April 1, 2009
New Delhi, Aug. 14 Private sector managed provident fund and superannuation trusts can now have greater exposure in the stock markets.
They can soon directly invest up to 15 per cent of their investible funds in shares of companies on which derivatives are available in the Bombay Stock Exchange (BSE) or National Stock Exchange (NSE).
This has been provided in the new investment pattern for non-government provident, superannuation and gratuity funds issued by the Finance Ministry here today.
The new investment pattern, which would come into force from April 1, 2009, has been issued after factoring in the developments in the financial market and economy.
They have been revised to make it more flexible and give the trustees of these funds more autonomy and discretion. The investment pattern was last revised on January 24, 2005.
At the draft stage of these new guidelines, the Government was looking to allow these funds to invest upto 10 per cent of their portfolio in shares of companies that had an investment grade debt rating from a credit rating agency. It was also proposed to allow investments in shares of BSE Sensex and NSE Nifty companies and equity-linked schemes of mutual funds.
Official sources said that the latest move to specify the investment universe as those on which derivatives are available was intended to ensure that these PF, gratuity and superannuation funds get invested in good quality stocks with large trading volumes and market capitalisation.
"We don't want these non-government PF trusts to get saddled with illiquid stocks. Non-government PF trusts are being allowed to invest in high liquidity shares and so the linkage to derivatives; we have now allowed for greater exposure of 15 per cent as against the earlier planned 10 per cent", sources said.
Currently, about 228 single stock futures are traded in the futures and options segment of NSE, with about 39 more to be added from the last week of August.
The other changes made in the investment pattern include merger of Central Government Securities, State Government Securities and units of gilt Mutual Funds into a single category and allowing investment up to 55 per cent of the investible funds; providing a flexible ceiling for various category of instruments instead of fixed investment ceiling as at present; providing new category of instruments, such as rupee bonds of multilateral funding agencies, money market instruments and permitting investment in term deposit receipts of not less than one year duration issued by scheduled commercial banks.
The new investment pattern also recognises the fiduciary responsibility of the trustees and the need for exercise of due diligence by them. It gives them greater flexibility in terms of a wider variety of financial instruments as well as greater freedom to actively manage the portfolio.
Moreover, the trustees will have freedom to exit from a rated financial instrument when their rating falls below investment grade as confirmed by one credit rating agency;
The trustees have also been given freedom of trading in securities, subject to the turnover ratio (i.e., the value of securities traded in the year divided by average value of the portfolio at the beginning and end of the year) not exceeding two.