Will investing in sovereign green bonds increase NPS return?

Pension Fund Regulatory Development Authority (PFRDA), chairman, Deepak Mohanty, had said that pension funds would now invest in Government of India’s sovereign green bonds. But, will investing in sovereign green bonds increase NPS return?

Investing in sovereign green bonds will hardly make any difference in NPS returns because such bonds generally give lower returns than other government bonds. Return on sovereign green bonds in India has hitherto been in the range of 7.10% – 7.29%. While, 10 year government bond’s current yield is 7.35%.

Which other types of bonds PFRDA pension funds invest in?

Pension funds invest subscribers’ contributions in government securities, debt instruments, rupees bonds, short term debt instruments like money market instruments inter alia.

Pension funds can invest how much amount in government bonds?

The pension funds are not allowed to invest more than 55% of total corpus in government securities. Within 55% of total corpus, the fund will have to invest in all types of government bonds mentioned above.

Why PRFDA Chairman allowed pension funds to invest in sovereign green bonds?

Well, PRFDA Chairman, Deepak Mohanty, didn’t specify the reason behind his move. The only reason which could be guessed is diversification of funds. Sovereign green bonds carry government’s guarantee on both principle and minimum rate of return.

Is your investment safe in sovereign green bonds?

Yes. Investment in sovereign green bonds or climate bonds are absolutely safe. As, first and foremost, these bonds will be issued by government of India. So, such climate bonds carry sovereign guarantee. Secondly, the government has explicitly specified in its framework for sovereign green bonds, that, if the project in which money raised through issue of such bonds becomes stalled, then, the investor will not beer any project related risk. Plus, the payment of principal amount and return on sovereign green bond will not depend on the performance of the project in which money is being invested. Whether, the green project becomes stalled or gets completed, the investor will get back the principal amount and interest earned.

Where do pension funds invest your money?

Pension funds are allowed to invest in various avenues like Government securities, debt instruments and equities. In eauity category, apart from first 200 companies listed on stock market indices pension funds can invest in IPOs, FPOs and OFS as well.

Pension Funds Investment Limit Asset Class Wise 

Source: PFRDA