NPS bulks up on Aaa-rated papers

The National Pension System’s (NPS’) debt assets in Aaa-rated papers has increased by 1.83 percentage point to 37.87 per cent, in the one-year period ended September 30, 2019. Over a three-year period, Aaa-rated assets have surged 4.8 percentage points.

Conversely, assets in AA- and below-rated papers have reduced 87 basis points (bps) in the past year and shrunk by 3.5 percentage points in the past three years.

According to experts, the increase in Aaa-rated papers signifies risk aversion in the aftermath of the IL&FS crisis. “We are concerned about the ratings and the quality of papers that we invest in, and are willing to sacrifice returns to ensure that principal is protected,” said a senior NPS official. Total NPS debt assets stood at ~14,246 crore as on September 30, 2019.

While NPS’ tier-i equity schemes have delivered low-tomid-single-digit returns over the past year, debt schemes have given far higher returns, aiding the overall NPS portfolio. Government bond plans have returned 17-18 per cent in the year up till September 30, 2019, while corporate debt plans have returned an average of 14.1 per cent over the same period. Bond funds have benefitted from policy rate cuts. Mutual funds have retreated from AA- and below-rated papers. As a percentage of overall debt assets, investments in Aaa-rated and sovereign papers have surged 10.3 percentage points in the past year to 38 per cent, while those in AA- and below-rated papers have reduced 9.6 percentage points to 62 per cent.