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NEW PENSION SCHEME FUND MANAGEMENT Arun Kaul GM ( Treasury) Punjab National Bank
Fund management Issues <ul><li>Investment Patterns </li></ul><ul><li>Fund Management Strategies </li></ul><ul><li>Performa...
INVESTMENT PATTERN
Present Investment Pattern
Drawbacks of Present Pattern  <ul><ul><ul><li>There is a  single portfolio option  for any investor. He has to invest in t...
Proposed Investment Pattern <ul><li>In the proposed system the investor will have a choice of 6 Pension fund Manager each ...
Evaluation of Proposed Pattern <ul><ul><li>In Growth Fund an exposure of upto 50 % in equities is on the higher side. </li...
Framework for Debt Investments <ul><li>Investment Grade rating </li></ul><ul><li>Listing at stock exchanges </li></ul><ul>...
Framework for Equity investments <ul><li>Investments may be restricted to Index Stocks </li></ul><ul><li>Min. requirements...
Disclosures <ul><li>All the disclosure requirements with respect to Portfolio Composition, Fees & expenses change in inves...
Suggested Investment Pattern
FUND MANAGEMENT STRATEGIES
Fund Management Strategies <ul><li>The basic characteristics of the new pension system: </li></ul><ul><li>Defined contribu...
Fund Management Strategies ACTIVE FUND MGT. PASSIVE FUND MGT.
Passive Fund Management <ul><li>Passive Fund Management has been prescribed for investment in equities. </li></ul><ul><li>...
Active Fund Management <ul><li>Active fund management may offer better return because of a wider portfolio choice </li></u...
PERFORMANCE EVALUATION
Benchmarking for G-secs and Corporate bonds  <ul><li>Since bonds per se represent the decision of risk aversion hence pass...
Performance Measurement <ul><li>If passive fund management is used as the technique, then a key tool to measure the perfor...
REGULATORY MECHANISM
Regulatory Issues <ul><li>A separate regulator -  PFRDA has been envisaged </li></ul><ul><li>However the regulatory issues...
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  1. 1. NEW PENSION SCHEME FUND MANAGEMENT Arun Kaul GM ( Treasury) Punjab National Bank
  2. 2. Fund management Issues <ul><li>Investment Patterns </li></ul><ul><li>Fund Management Strategies </li></ul><ul><li>Performance evaluation </li></ul><ul><li>Regulatory Mechanism </li></ul>
  3. 3. INVESTMENT PATTERN
  4. 4. Present Investment Pattern
  5. 5. Drawbacks of Present Pattern <ul><ul><ul><li>There is a single portfolio option for any investor. He has to invest in the above portfolio irrespective of his risk appetite. </li></ul></ul></ul><ul><ul><ul><li>The existing portfolio is almost completely invested in Govt. or Govt. linked securities which result in a low rate of return </li></ul></ul></ul><ul><ul><ul><li>The funds have no exposure to equities which does not give an opportunity to the member to have a higher return </li></ul></ul></ul><ul><ul><ul><li>The funds are completely invested in Indian securities thus there is no scope for diversification of country or political risk </li></ul></ul></ul>
  6. 6. Proposed Investment Pattern <ul><li>In the proposed system the investor will have a choice of 6 Pension fund Manager each offering 3 schemes : Safe, Balanced and Growth </li></ul>
  7. 7. Evaluation of Proposed Pattern <ul><ul><li>In Growth Fund an exposure of upto 50 % in equities is on the higher side. </li></ul></ul><ul><ul><li>Equities expose the fund to possible erosion in the contribution of the member </li></ul></ul><ul><ul><li>Fund managers may also be allowed to use Derivatives to reduce market risks and Hedge returns </li></ul></ul><ul><ul><li>Moreover the guidelines may allow the Fund managers to invest in MBS/ABS and REITS ( as and when introduced in India) which may offer them a higher return while allowing for further diversification in asset class </li></ul></ul>
  8. 8. Framework for Debt Investments <ul><li>Investment Grade rating </li></ul><ul><li>Listing at stock exchanges </li></ul><ul><li>Analysis of Long Term potential and risk of the industry/ sector </li></ul>
  9. 9. Framework for Equity investments <ul><li>Investments may be restricted to Index Stocks </li></ul><ul><li>Min. requirements of M-cap can be laid down </li></ul><ul><li>Other determinants such as dividend record, position in the segment, CMP/BV and trading volumes can be stipulated to restrict the investments to quality stocks </li></ul>
  10. 10. Disclosures <ul><li>All the disclosure requirements with respect to Portfolio Composition, Fees & expenses change in investment focus etc. need to be disclosed . Such guidelines can be evolved on the same lines as those applicable to Mutual Funds. </li></ul><ul><li>Basic approach of such disclosures should be “Principle” based rather than “rule” based with a view to make available all information relating to the health of the fund </li></ul>
  11. 11. Suggested Investment Pattern
  12. 12. FUND MANAGEMENT STRATEGIES
  13. 13. Fund Management Strategies <ul><li>The basic characteristics of the new pension system: </li></ul><ul><li>Defined contribution rather than defined benefit </li></ul><ul><li>No assured returns </li></ul><ul><li>Passive management for Equity investments </li></ul>
  14. 14. Fund Management Strategies ACTIVE FUND MGT. PASSIVE FUND MGT.
  15. 15. Passive Fund Management <ul><li>Passive Fund Management has been prescribed for investment in equities. </li></ul><ul><li>Such method will definitely keep the management costs down </li></ul><ul><li>Moreover it will ease the acceptability of equities as a part of pension fund portfolio in the initial period </li></ul>
  16. 16. Active Fund Management <ul><li>Active fund management may offer better return because of a wider portfolio choice </li></ul><ul><li>However it may expose the fund to the relative competency of the fund manager </li></ul><ul><li>Moreover it may be better to go for passive fund management for international investment until the Indian markets develop a mature understanding of International markets </li></ul>
  17. 17. PERFORMANCE EVALUATION
  18. 18. Benchmarking for G-secs and Corporate bonds <ul><li>Since bonds per se represent the decision of risk aversion hence passive management with respect to some defined index should be used such as CompBEX. </li></ul><ul><li>But for the purpose of providing performance measure/ benchmarking to the customer, some hybrid index needs to be developed, which would capture the expected risk and return levels for each investment pattern. </li></ul>
  19. 19. Performance Measurement <ul><li>If passive fund management is used as the technique, then a key tool to measure the performance of PFM would be tracking error w.r.t. benchmark hybrid index. </li></ul><ul><li>Moreover the performance of the PFM should be compared with the respective benchmarks </li></ul><ul><li>Such comparisons should be adequately disclosed to enable members make a decision regarding continued patronage of a PFM </li></ul>
  20. 20. REGULATORY MECHANISM
  21. 21. Regulatory Issues <ul><li>A separate regulator - PFRDA has been envisaged </li></ul><ul><li>However the regulatory issues pertaining to PFs are similar to Mutual Funds. Therefore a separate cell within SEBI can serve the purpose </li></ul><ul><li>This will save the participants from multiple regulatory jurisdiction and also enable integrated regulatory framework </li></ul>
  22. 22. Thank You
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