PFRDA Proposes Dual Valuation Framework for Pension Funds

• The Pension Fund Regulatory and Development Authority (PFRDA) has proposed a “Dual Valuation Framework” for government securities (G-Secs) held under the National Pension System (NPS) and Atal Pension Yojana (APY) to reduce volatility in Net Asset Values (NAVs) and promote long-term fund stability.

Objective:
The new model aims to balance short-term market movements with long-term investment goals by valuing G-Secs on both mark-to-market (MTM) and accrual bases. This approach seeks to provide a more stable and realistic depiction of pension wealth during accumulation phases spanning 20–40 years.

Current System:

• Presently, NPS investments are fully valued on an MTM basis.

• Daily NAVs reflect real-time market price changes, causing short-term fluctuations in pension wealth.

• As defined contribution schemes, NPS and APY place investment risks on subscribers.

Proposed Change:

• PFRDA suggests moving part of the G-Sec holdings to a “Held to Maturity” (HTM) category under the accrual method.

• Under this, income and amortisation are recorded daily, without adjusting for temporary market price changes.

• The model aims to smoothen NAV movements and provide fund managers flexibility in managing liquid assets.

Related GK Facts:

• NPS: Launched in 2004 (for government employees) and opened to all citizens in 2009.

• APY: Introduced in 2015 for unorganised sector workers.

• MTM vs Accrual: MTM reflects current market prices; accrual records income as earned.

• G-Secs: Long-term debt instruments issued by the Government of India for public spending.

Impact:
The dual valuation model will make pension fund performance more predictable, reduce subscriber anxiety over daily NAV swings, and encourage long-term investment in infrastructure. It also supports PFRDA’s goal of aligning India’s pension strategy with sustainable economic and financial stability.