Govt and non-Govt subscribers of NPS should have similar choice for investing: Hemant G Contractor
In a candid chat, Hemant G Contractor , Chairman, PFRDA talks to ET Now about why it is important for government employees to have same investment choices as non government employees and what are his future plans.
Edited excerpts:
Tell us what is your rationale behind proposing up to 50 per cent investment in equities?
PFRD Act says that all subscribers to the NPS, that is, National Pension System should be given similar choices and for the non-government subscribers, investment in equities is permitted up to 50 per cent whereas in the case of government subscribers it is restricted to 15 per cent.
We have been talking to the government to give similar choice to government subscribers as is available to the non-government subscribers and that really is the genesis of this issue.
What is your current exposure to equities directly or indirectly?
Overall it is about 13 per cent of the whole corpus so that is what the entire investment in equity is at the moment.
The aggregate picture would change because in last couple of years your commitment towards equities has gone up significantly higher.
Yes. Investment in equities has picked up pace in the last one or two years and that is why we do feel that if the government subscribers are given a similar choice as the non-government subscribers, then the amount going into equities would increase much more than what it is right now.
One of other reasons why we are saying that the government subscribers should also be given a similar choice as the non-government subscribers is the fact the worldwide pensions they [ government subscribers ] are long-term investors and equity, therefore it fits in quite well with the investment pattern of pension funds.
Globally also you will see a lot of money going into equity markets through pension funds and that is what we are actually seeking to do here as well. We would like to see more flows going into equities which are basically long-term investments and well suited for pensions.
In the next one or two years to come where do you see the subscribers base expanding to?
This year we expect to grow by about 22-23 per cent in terms of the subscriber base and we would expect the story to be repeated next year as well, similar kind of growth 22-23 per cent on an expanded base.
Your expectation of the net collection for FY18 and what do you think the number could look like for FY17?
In 16-17 we are expecting a growth of 40 per cent in the amount that we are managing and we expect similar kind of growth next year as well in 17-18.
Especially since the markets are doing well and the amount that we manage has a lot to do with the state of the markets so we would expect similar kind of growth on an expanded subscriber base and on an expanded investment base to be of the same order as this year, about 40 per cent growth next year as well.
How much of equity money would come from you in next one year?
We are growing annually at around Rs 25 to 30 thousand crores and next year too since the base is expanding and we are expecting a similar kind of growth in percentage terms, the number would probably grow by more than that about Rs 30-35 thousand crores. So 13 per cent of that is roughly about Rs 4000 crores is what one would expect to flow into the equity markets if our proposal to the government is not exceeded too. But if our proposal to the government is exceeded too, then the flow to the equity market could be stepped up.
What stages are you talks, by when do you think the government would take this up and when do you see the approvals coming in?
We have been in discussion with the government over this issue for quite some time and the government has listened to our arguments and they do seem to be looking at it quite favourably so we would expect positive kind of response from them very shortly.
Because we have had some meetings with them and we do get the impression that they are looking at it favourably so we would expect some sort of positive response very shortly.
Could we look at a decision coming in in the next two to three months?
Well, I would expect a decision to be coming in the next one or two months.
Are you going to direct equities, are you going by ATF, what is your preferred route of investment?
Till recently we were investing only through the mutual fund route but a couple of years ago we permitted investment in individual stocks so now there is an equal mix of amounts going into mutual fund, equity mutual fund and the amount going into individual stocks.
The pace of growth of the individual stock investments has increased over the last one year. So we would expect the similar kind of structure to be present next year as well.
Is there a problem with that remaining non-equity corpus, to get high yields now without taking any risk is going to be tough and impossible.
Yes, in fact that only bolsters the argument about little more investment in equity markets because at the end of the day our pension schemes are defined contribution schemes which means that the pension that a subscriber gets depends on the kind of returns that the corpus earns.
So we have to be on the lookout for improving the return so that our subscribers get a decent pension when they retire and as you rightly say the debt markets are probably reached the low and therefore we have to look at other instruments to see that the returns that the funds generate are adequate for giving the proper pension amounts. So we have to be constantly on the lookout for new instruments and that is what we have been doing so far.
Edited excerpts:
Tell us what is your rationale behind proposing up to 50 per cent investment in equities?
PFRD Act says that all subscribers to the NPS, that is, National Pension System should be given similar choices and for the non-government subscribers, investment in equities is permitted up to 50 per cent whereas in the case of government subscribers it is restricted to 15 per cent.
We have been talking to the government to give similar choice to government subscribers as is available to the non-government subscribers and that really is the genesis of this issue.
What is your current exposure to equities directly or indirectly?
Overall it is about 13 per cent of the whole corpus so that is what the entire investment in equity is at the moment.
The aggregate picture would change because in last couple of years your commitment towards equities has gone up significantly higher.
Yes. Investment in equities has picked up pace in the last one or two years and that is why we do feel that if the government subscribers are given a similar choice as the non-government subscribers, then the amount going into equities would increase much more than what it is right now.
One of other reasons why we are saying that the government subscribers should also be given a similar choice as the non-government subscribers is the fact the worldwide pensions they [ government subscribers ] are long-term investors and equity, therefore it fits in quite well with the investment pattern of pension funds.
Globally also you will see a lot of money going into equity markets through pension funds and that is what we are actually seeking to do here as well. We would like to see more flows going into equities which are basically long-term investments and well suited for pensions.
In the next one or two years to come where do you see the subscribers base expanding to?
This year we expect to grow by about 22-23 per cent in terms of the subscriber base and we would expect the story to be repeated next year as well, similar kind of growth 22-23 per cent on an expanded base.
Your expectation of the net collection for FY18 and what do you think the number could look like for FY17?
In 16-17 we are expecting a growth of 40 per cent in the amount that we are managing and we expect similar kind of growth next year as well in 17-18.
Especially since the markets are doing well and the amount that we manage has a lot to do with the state of the markets so we would expect similar kind of growth on an expanded subscriber base and on an expanded investment base to be of the same order as this year, about 40 per cent growth next year as well.
How much of equity money would come from you in next one year?
We are growing annually at around Rs 25 to 30 thousand crores and next year too since the base is expanding and we are expecting a similar kind of growth in percentage terms, the number would probably grow by more than that about Rs 30-35 thousand crores. So 13 per cent of that is roughly about Rs 4000 crores is what one would expect to flow into the equity markets if our proposal to the government is not exceeded too. But if our proposal to the government is exceeded too, then the flow to the equity market could be stepped up.
What stages are you talks, by when do you think the government would take this up and when do you see the approvals coming in?
We have been in discussion with the government over this issue for quite some time and the government has listened to our arguments and they do seem to be looking at it quite favourably so we would expect positive kind of response from them very shortly.
Because we have had some meetings with them and we do get the impression that they are looking at it favourably so we would expect some sort of positive response very shortly.
Could we look at a decision coming in in the next two to three months?
Well, I would expect a decision to be coming in the next one or two months.
Are you going to direct equities, are you going by ATF, what is your preferred route of investment?
Till recently we were investing only through the mutual fund route but a couple of years ago we permitted investment in individual stocks so now there is an equal mix of amounts going into mutual fund, equity mutual fund and the amount going into individual stocks.
The pace of growth of the individual stock investments has increased over the last one year. So we would expect the similar kind of structure to be present next year as well.
Is there a problem with that remaining non-equity corpus, to get high yields now without taking any risk is going to be tough and impossible.
Yes, in fact that only bolsters the argument about little more investment in equity markets because at the end of the day our pension schemes are defined contribution schemes which means that the pension that a subscriber gets depends on the kind of returns that the corpus earns.
So we have to be on the lookout for improving the return so that our subscribers get a decent pension when they retire and as you rightly say the debt markets are probably reached the low and therefore we have to look at other instruments to see that the returns that the funds generate are adequate for giving the proper pension amounts. So we have to be constantly on the lookout for new instruments and that is what we have been doing so far.
