Gold and Silver under NPS: The Pension Fund Regulatory and Development Authority (PFRDA) has made a new change that will affect people who save under the National Pension System. The regulator now lets pension funds invest a very small part of their money in gold and silver exchange-traded funds, also known as ETFs. These ETFs are controlled by SEBI, so they follow strict rules.
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Different Limits for Government and Non-Government Sectors
The regulator has set different rules for how much pension funds can put into these precious metal ETFs. For people in the non-government sector, the funds can invest up to 5% of the scheme portfolio in gold and silver ETFs. But the limit is much lower for government subscribers. Pension funds can invest only 1% of the scheme portfolio for them.
The official rule from the “Master Circular on Investment Guidelines for Government Sector” says, “Provided that the aggregate investment under sub-category (f) shall not exceed the 1% of the respective Scheme AUM managed by the Pension Fund.”* The note explains that sub-category (f) is meant for gold and silver ETFs.
Government subscribers must follow a strict mix of investments. A large portion goes into government securities, while another part goes into equity that is linked to big stock indices. There are also clear rules for how much can go into debt instruments and short-term money market products
How Government Sector Investments are Divided?
Government subscribers have a set pattern for how their money is spread. Pension funds can put up to 65% of the money in government securities. Another part, up to 25%, can go into equity and related products, which include stocks from the Nifty 250 Index and the BSE 250 Index.
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The rule says that 90% of the equity money must stay within the top 200 stocks of the Nifty 250 Index. Funds can also use equity mutual fund units, ETFs linked to Nifty 50 or Sensex, exchange-traded derivatives and even IPO investments, reported Upstox.
Debt investments for government subscribers can go up to 45%. This section includes listed debt papers from companies, banks, financial institutions and other regulated entities. It also includes debt mutual fund units and debt ETFs released by the Government of India. But the money going into debt mutual funds and debt ETFs cannot be more than 5% of the entire debt portion.
Short-term debt choices can go up to 10%. This list covers Treasury Bills, Certificates of Deposit, Commercial Papers and short-term mutual fund schemes with a fund size of at least ₹5000 crore. These instruments are used to keep some part of the portfolio safe and easy to access.
Another 5% can go into asset-backed and trust-based products such as REITs, InvITs, SEBI-approved AIFs under Category I and II, and gold and silver ETFs. Investments in AIFs are also capped at 1% of the scheme’s total assets. Even in this section, gold and silver ETFs must stay within the 1% rule set for government subscribers.
Rules within Limits
The master circular also clearly states that funds must always follow the maximum limit for every category and sub-category.
It says, “At any given point of time the percentage of assets under each category should not exceed the maximum limit prescribed for that category and also should not exceed the maximum limit prescribed for the sub-categories, if any. However, asset switch because of any RBI-mandated Government debt switch would not be covered under this restriction.”
