The Hindu : Business : Private PFs can invest 15% in stock markets

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Private PFs can invest 15% in stock markets

Special Correspondent

Revised pattern to come into force from April 1, 2009

Changes effected in line with economic scenario
Flexible ceiling option for investment

NEW DELHI: In a major liberalisation move, the Union Government on Thursday notified significant changes in the investment pattern for non-government provident funds, superannuation and gratuity funds to provide the trustees of these funds with greater flexibility, autonomy and discretionary powers in terms of investment.

Wide-ranging changes

According to the notification issued here by the Department of Economic Affairs (DEA) in the Finance Ministry, the wide-ranging changes by way of revision in investment norms are being effected based on the developments in the financial market and the current economic scenario. The revised investment pattern is to come in to force from April 1, 2009.

In a statement here, the Finance Ministry said that the revised investment pattern “explicitly recognises the fiduciary responsibility of the trustees and the need for the exercise of due diligence by them and gives them greater flexibility in terms of a wider variety of financial instruments as well as greater freedom to actively manage the portfolio.”

Under the new investment pattern, the Government has decided to permit merger of Central government securities, State government securities and units of gilt mutual funds into a single category while allowing investment up to 55 per cent of the investible funds. From fiscal year 2009-10, trustees of these funds will have the option of a flexible ceiling for various categories of instruments instead of the fixed investment ceiling now. Alongside, the revised investment pattern will provide a new category of instruments such as rupee bonds of multilateral funding agencies and money market instruments.

Freedom to exit

Fund trustees will also be permitted to invest in term deposit receipts of not less than one year duration issued by scheduled commercial banks subject to the specified financial criteria.

More importantly, the new pattern also permits direct investment up to 15 per cent of the investible funds in shares of companies on which derivatives are available in the Bombay Stock Exchange (BSE) or the National Stock Exchange

As for the autonomy and discretionary powers of trustees, they 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 been given freedom of trading of securities, subject to the turnover ratio (that is, 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,” the statement said.

“Though it is expected that throughout the year the investments are in conformity with the investment pattern, the same may be achieved by the end of the financial year. Trusts will have the flexibility of exceeding the investment ceiling up to 10 per cent of the limit prescribed during the year,” it said.

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