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NPS, CBT-EPFO have huge exposure to toxic IL&FS bonds
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SME Times News Bureau | 13 Apr, 2019
India's National Pension System and Central Board of Trustees of
retirement fund body EPFO stand imperiled due to the toxic nature of the
IL&FS bonds it has exposure to. Innumerable NPS funds have exposure
to these bonds, IANS has totalled them up to over Rs 1,200 crore.
While
the government continues to hardsell NPS as a perfect solution for
retirement planning providing old age income with reasonable
market-based returns, based as it is on a unique Permanent Retirement
Account Number (PRAN) allotted to every subscriber for NPS, it is
contaminated by the bonds.
What makes it worse for the BJP
government trying to get itself re-elected is that Central Board of
Trustees EPF too has exposure to the same virus-infected bonds. Both NPS
and CBT have skin in the game which is not good news for the
government. The amounts vary here as well but CBT EPF 11 B DM has an
outstanding exposure of Rs 147 crore while CBT EPF 25 B DM has an
exposure of Rs 200 crore.
Another CBT EPF 5 C DM had an exposure
of Rs 181.81 crore. The Central Board of Trustees (CBT) of retirement
fund body EPFO has in the past turned down the proposal to reduce the
mandatory contributions from workers and employers to 10 per cent.
Employees and employers contribute 12 per cent of basic wages each
towards Employees Provident Fund Scheme (EPF), Employee Pension Scheme
(EPS) and Employee Deposit Linked Insurance Scheme (EDLI).
The
contributions invested in NPS are managed by eight Pension Fund Managers
(PFM) appointed by PFRDA. The Subscriber can choose any one of the
given entities: HDFC Pension Management Company Limited, Reliance
Capital Pension Fund Limited, UTI Retirement Solutions Limited, Kotak
Mahindra Pension Fund Limited, LIC Pension Fund Ltd, SBI Pension Funds
Private Limited and ICICI Prudential Pension Funds Management Company
Limited.
Subscribers have the option to select allocation
pattern for their investment across various asset classes. The
subscriber has the freedom to design the portfolio among 3 asset
classes: Equity (E): This is a 'High risk – High Return' option as the
funds are invested in equity a subscriber can choose to invest up to 50%
in this class; Corporate Bonds (C): Funds are invested in fixed income
bearing instruments which offer medium returns and government
securities;(G): Funds are invested only in government securities. It is
important to give this background for IL&FS bonds were 'triple A'
rated and considered best of breed till the meltdown began.
Pension
Fund Regulatory and Development Authority (PFRDA) that regulates the
National Pension Scheme (NPS) expects assets under management (AUM) to
touch Rs 2.85 lakh crore in FY19, from Rs 2.3 lakh crore in the last
financial year. This is a significant number. IANS which has been at the
vanguard of exposing the problems with IL&FS bonds has now
discovered that NPS too has large investments in these toxic bonds:
* NPS Trust - A/c UTI Retirement Pension Fund scheme - Central govt: Rs 10 cr * NPS Trust - ditto - state govt: Rs 4 cr * NPS Trust - ditto - central govt: Rs 10 cr * NPS Trust - ditto - C Tier 1: Rs 0.10 cr * NPS Trust - ditto - state govt: Rs 9.80 cr * NPS Trust - ditto - NPS Lite scheme Govt pattern: 0.10 cr
Over
75 such entries were found with amounts varying from a high of Rs 110
crore in one case to Rs 75 crore in two cases and others ranging between
Rs 10 lakh to Rs 10 to Rs 15 crore to several entries of Rs 20 crore to
Rs 19.50 crore to Rs 14.36 crore to many of Rs 15 crore each. Also
there are entries of Rs 40 crore, Rs 50 crore, Rs 28 crore, Rs 35 crore.
As a norm they are for central and state govt employees who had joined
the NPS. Ballpark, it is in excess of Rs 1,200-crore exposure.
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