According to a circular dated 12th May, 2022, “It has been decided by the Authority that pension fund Management of the asset classes Equity (E), Corporate Debt (C), Government Securities (G) and Tier I and Tier II schemes of Scheme A, shall maintain and disclose the risk profile of the schemes in accordance with the following guidelines.
The risk profile will have the following six levels of risk for the schemes:
- low risk
- low to moderate risk
- Medium risk
- medium high risk
- high risk, and
- too high risk
Where to do risk profiling
The risk profiling will be disclosed on the websites of the pension funds concerned under the section ‘Portfolio Disclosure’ within 15 days from the end of each quarter.
Funds eligible for risk profiling
The authority has ruled that pension funds managing Tier I and Tier II asset classes Equity (E), Corporate Debt (C), Government Securities (G), and Scheme A must maintain and disclose the risk profiles of the schemes .
credit risk profile
As per the circular, “Based on the instrument’s conservative credit rating, a credit risk value of 0 to 12 will be assigned. A credit value of 0 indicates the highest credit quality, while a credit value of 12 indicates the lowest credit quality.” Thus, the credit risk score of the portfolio will be arrived at by combining the product of the credit risk value of the securities and their allocation in the portfolio.”
The NPS Trust will review the risk profiling on a quarterly basis, and any modifications will be disclosed on the Pension Fund’s websites as well as communicated to the NPS Trust for updating.
The risk level of the schemes and the number of times the risk level has been changed during the year will be published on the websites of the pension fund as on 31st March every year.
This circular will be effective from July 15, 2022 for all existing schemes in categories E, C, G and A. However, pension funds may choose to implement the provisions before the effective date.