Pension Fund Regulatory and Development Authority (PFRDA) is planning to allow some flexibility to pension fund managers in valuing their portfolios to help them to increase valuation and show better returns.

Better returns may encourage more subscribers to join New Pension System (NPS), which has failed to garner substantial interest from unorganized sector that includes people ranging from sidewalk vegetable vendors to those employed as household help and in small business units.

PFRDA may soon give pension fund managers the option of only valuing their equity investments on a mark-to-market (MTM) basis) the practice of valuing investments at their current market price and not the price at which they were bought. Pension fund managers will be allowed to exclude their government bond holdings from this practice.

This will ensure that the valuation of the government securities portfolios does not come down when bond yields increase. Bond prices and yields move in opposite directions; prices typically decline when interest rates are firm or are rising.

This move will help to improve the Net Asset Value (NAV) of portfolios managed by pension fund managers.

At present, pension fund managers have to mark their entire portfolio, including equities and government securities on MTM basis.

As government securities are generally long term in nature and held to maturity, PFRDA is looking to give an option to pension fund managers for not making some portions of government securities MTM.

The national pension scheme was initially launched for central government employees in 2008 and later extended to state government employees. From first May 2009, the scheme was extended to the unorganized sector.

The scheme for the unorganized sector offers the investors the option of choosing between three investment options including investments in predominantly equity markets, in only government securities and investments in fixed income instruments. Of around Rs 20,000 crores managed by pension fund managers for all the three put together, more than 95% is in government securities.

At present, there are seven fund managers under NPS including SBI Pension fund, UTI Retirement solutions and ICICI Prudential Pension Fund Management.

When portfolio is in Mark-To-Market, fund managers have to make provisioning in case of a fall in value. It is not done in the profit and loss account but in the NAVs.

Hence, pension fund managers say that there should be some distinction between short-term instruments like mutual funds and long-term investments like pension. In mutual funds lock-in is not for a long time period in contrast, in pension, people invest till they are 60 years of age.