Government notifies the Investment Pattern for Non-Government Provident Funds, Superannuation Funds and Gratuity Funds. This is reviewed from time to time and revisions are effected based on the developments in the financial market and economy. The investment pattern was last revised on 14^th August, 2008 and was to be made effective from 1^st April, 2009. Subsequently, there was a budget announcement in the Budget Speech of 2013-14 that the list of eligible securities in which pension funds and provident funds may invest will be enlarged to include exchange traded funds, debt mutual funds and asset backed securities. Subsequently, a Committee on investment pattern for pension and insurance sector was constituted by the Department of Financial Services, Ministry of Finance (DFS) under the Chairmanship of Shri G. N. Bajpai, Ex-Chairman of LIC and SEBI, which submitted its report in December, 2013. The Committee inter alia, made certain recommendations regarding revising the Investment Pattern to provide greater flexibility to subscribers to maximise returns as also to provide long term resources to productive sectors in the economy. Accordingly, the proposed revised pattern was put up on the website of the DFS in draft form in June, 2014 inviting comments. A large number of comments were received and these have been examined by the Government.  

2.       Based on this feedback, the revised investment pattern has been finalised and is being notified shortly. It explicitly recognises the fiduciary responsibility of the Trustees and the need for the exercise of due diligence by them and provides sound and objective criteria to them to select any financial instrument. Further, it also gives them greater flexibility in terms of a wider variety of financial instruments as well as greater freedom to manage the portfolio, in terms of newer instruments and greater flexibility in investment limits. The changes suggested in the new investment pattern, with effect from 1^st April, 2015, inter alia, include: 

(i)      providing minimum and maximum limits for Central Government Securities, State Government Securities, Government Guaranteed Securities (with a separate maximum limit of not in excess of 10%) and units of gilt Mutual Funds, forming part of a single category and allowing investment up to 50% of the investible funds, instead of 55% under the earlier Investment Pattern of 2008; 

(ii)     providing a minimum investment ceiling for the categories of (a) Government Securities, (b) debt securities and (c) the equity and equity related instruments;  

(iii)     providing new category of instruments, such as, Index Funds, Exchange Traded Funds, debt mutual funds and asset backed securities and instruments, such as, the infrastructure debt funds, real estate investment trusts, Infrastructure Investment Trusts, Basel III compliant tier-I bonds of banks and exchange traded derivatives with the sole purpose of hedging; 

(iv)    permitting investment in term deposit receipts of even less than one year duration issued by scheduled commercial banks subject to the specified financial criteria; and  

(v)     prescribing investment of minimum 5% and up to 15% of the investible funds in equity and equity related instruments.    

(vii)    strengthening credit rating requirements for some financial instruments from “investment grade” to “AA” category, keeping the protection of interests of subscribers, in view 

(3)     Further, it has been provided that,-

(i).     The prudent investment of the Funds of a trust / fund within the prescribed pattern is the fiduciary responsibility of the Trustees and needs to be exercised with appropriate due diligence. The Trustees would accordingly be responsible for investment decisions taken to invest the funds.

(ii).    The trustees will take suitable steps to control and optimize the cost of management of the fund.

(iii).   The trust will ensure that the process of investment is accountable and transparent.

(iv).   It will be ensured that due diligence is carried out to assess risks associated with any particular asset before investment is made by the fund in that particular asset and also during the period over which it is held by the fund. The requirement of ratings as mandated in this notification merely intends to limit the risk associated with investments at a broad and general level. Accordingly, it should not be construed in any manner as an endorsement for investment in any asset satisfying the minimum prescribed rating or a substitute for the due diligence prescribed for being carried out by the fund / trust.

(v).    The trust / fund should adopt and implement prudent guidelines to prevent concentration of investment in any one company, corporate group or sector. 

4.       The new investment pattern would come into force from 1^st April, 2015, that is, from the financial year 2015-16. A comparison of Investment Pattern of 2008 and that of 2015 is as below:

Instrument	Investment Pattern of 2008	Investment Pattern to be notified with effect from April 1, 2015
Government Securities	upto 55%	Minimum 45% and upto 50%
Debt Securities and term deposits of banks	upto 40%	Minimum 35% and upto 45%
Money Market Instruments	upto 5%	upto 5%
Equity and equity related instruments	upto 15%	A Minimum of 5% and upto 15%
Exchange Traded Funds/ Index Funds	No such Category	Exchange Traded Funds, Index Funds and derivatives are part of the a minimum 5% and Upto 15% limit for equity and equity related instruments
Asset Backed Securities, Units of Real Estate / Infrastructure Investment Trusts	0%	Upto 5% limit

 

Investment pattern reform expands eligible instruments and adjusts allocation limits, enhancing trustee discretion and due diligence obligations. Revised investment pattern for non government provident, superannuation and gratuity funds (effective 1 April 2015) adjusts allocation bands-government securities to 45-50%, debt to 35-45%, money market up to 5%, and equity 5-15%-and formally permits new instruments including index funds, exchange traded funds, debt mutual funds, asset backed securities, infrastructure debt funds, REITs/InvITs, Basel III tier I bonds and hedging derivatives; it raises credit thresholds for some instruments to AA and emphasises trustees' fiduciary duty, due diligence, transparency, cost control and concentration risk limits.