PFRDA Expands Investment Scope for Pension Funds: Gold, Silver, and Nifty 250 Now Eligible

New Delhi: In a significant move, the Pension Fund Regulatory and Development Authority (PFRDA) has broadened the investment scope for pension funds under the National Pension System (NPS). Pension funds can now invest in Gold and Silver Exchange-Traded Funds (ETFs), REITs, Alternative Investment Funds (AIFs), and the top 250 Nifty stocks by market capitalization, up from the earlier limit of Nifty 200.

According to a circular issued by PFRDA, investments in the top 250 stocks cannot exceed 25% of the total pension fund corpus.

Allocation Guidelines:

• For retail and high-net-worth individual investors under non-government schemes, Gold and Silver ETFs have been classified under the equity category (Asset Class E), along with REIT units and equity-focused AIFs.
• Pension funds’ total investment in this group cannot exceed 5% of their overall equity allocation.
• For government sector schemes, separate limits apply: Gold ETFs are capped at 1% of total assets, with a similar 1% limit for Silver ETFs. Pension funds may charge an investment management fee for ETF investments.

Alternative Investment Funds (AIFs):

• Pension funds can invest only in Category I and Category II AIFs, with each AIF having a minimum corpus of ₹100 crore.
• Investments cannot exceed 10% of the AIF’s total corpus.
• Debt-oriented AIFs are allowed to be combined with InvITs and Tier-1 bonds, subject to a 5% cap of total debt allocation.
• Equity-oriented AIFs are treated alongside Gold and Silver ETFs and REIT units, with total investments limited to 5% of equity allocation.

REITs and InvITs:

• Pension funds can invest in units issued by REITs and InvITs, as well as debt securities.
• For government schemes, debt investments must be AAA-rated by at least two SEBI-registered credit rating agencies, while non-government schemes require at least AA rating from two agencies.
• Total investment in REITs and InvITs cannot exceed 3% of the pension fund’s assets under management.
• PFRDA has also allowed pension funds to invest in government-issued debt ETFs, which invest in bonds issued by public sector entities.

This regulatory update is expected to give pension funds greater flexibility, diversify asset allocation, and provide investors exposure to alternative assets while adhering to prudent risk management norms.