The Pension Fund Regulatory and Development Authority (PFRDA) has issued a new Master Circular on 10 December 2025 to consolidate and update the investment guidelines for Government Sector pension schemes, including UPS, NPS, Atal Pension Yojana (APY), NPS Lite, and Corporate CG schemes.
This Master Circular replaces the earlier circular dated 28 March 2025 and brings all existing instructions, amendments, and clarifications under one comprehensive framework, ensuring uniformity, transparency, and better risk management for pension funds.
Background and Legal Authority
The Master Circular has been issued under the powers conferred by:
- Section 14(2)(b) and Section 23 of the PFRDA Act, 2013, and
- Regulation 14(1) of the PFRDA (Pension Fund) Regulations, 2015, as amended from time to time.
It becomes effective immediately and applies to all Pension Funds, NPS Trust, and NPS stakeholders.
Part I – Purpose of the Master Circular
The circular reiterates that pension funds must manage subscriber money strictly as per investment guidelines issued by PFRDA, keeping the best interest of subscribers as the primary objective.
All schemes must follow these guidelines in addition to other applicable laws and regulations.
Part II – General Compliance Guidelines
Key compliance principles include:
- Pension Funds must comply not only with this Master Circular but also with all applicable laws.
- Earlier circulars listed in the Appendix are rescinded and subsumed, but their past actions, rights, liabilities, penalties, or proceedings remain valid.
- No break in legal continuity will occur due to the consolidation.
Part III – Investment Guidelines and Asset Allocation
The Master Circular specifies clear asset class-wise investment limits to balance safety, liquidity, and returns.
1. Government Securities (Up to 65%)
Includes:
- Central and State Government Securities
- Fully guaranteed securities and Govt. of India Fully Serviced Bonds
- Dedicated G-Sec Mutual Funds (limited exposure)
This category ensures capital safety and stability.
2. Debt Instruments (Up to 45%)
Permitted investments include:
- Corporate bonds, bank bonds, Basel III Tier-I bonds
- Infrastructure and affordable housing bonds
- REIT and InvIT debt securities
- Municipal bonds and Government-issued Debt ETFs
Strict credit rating norms (AA / AAA), exposure limits, and credit default swap (CDS) protection for lower-rated instruments are mandated.
3. Short-Term Debt & Money Market Instruments (Up to 10%)
Includes:
- Treasury Bills, Commercial Paper, Certificates of Deposit
- Bank term deposits (up to one year)
- Liquid, overnight, and ultra-short duration mutual funds
- Government securities under TREPS
This category ensures liquidity management.
4. Equity Investments (Up to 25%)
Permitted equity exposure includes:
- Stocks from NIFTY 250 Index (90% in top 200 stocks)
- Equity Mutual Funds and ETFs (Nifty 50 / Sensex)
- Government disinvestment ETFs
- IPOs, FPOs, OFS (subject to strict eligibility norms)
- Equity derivatives for hedging only
This allows growth potential with controlled risk.
5. Asset-Backed & Miscellaneous Investments (Up to 5%)
Includes:
- REITs, InvITs, ABS, CMBS/RMBS
- Alternative Investment Funds (AIF Category I & II)
- Gold and Silver ETFs
Additional safeguards include minimum corpus size, sponsor independence, rating requirements, and exposure caps.
Key Risk Control and Governance Measures
- Industry exposure capped at 15% of AUM
- Strict limits on sponsor and group company investments
- Transparent reporting and mandatory disclosures
- Continuous monitoring by NPS Trust
- Mandatory portfolio rebalancing after NIFTY 250 index changes
- Brokerage capped at 0.03% for equity trades
Special Provisions
- APY Fund Scheme: No deduction of NPS Trust charges
- NPS Tier-II Tax Saver Scheme (TTS): Separate asset allocation limits
- Composite Tier-II Schemes: Temporary relaxations until AUM reaches ₹5 crore
- Asset class flexibility increased from 140% to 150% to improve fund management efficiency
Responsibility of Pension Funds
The circular emphasizes that:
- Prudent investment is a fiduciary responsibility
- Credit ratings are not substitutes for due diligence
- Subscriber interest must always take precedence
- Cost efficiency and transparency are mandatory
Conclusion
The PFRDA Master Circular 2025 on Investment Guidelines is a major step towards streamlining pension fund investments, improving risk management, and ensuring long-term financial security for subscribers under UPS, NPS, and APY schemes.
By consolidating multiple circulars into a single authoritative document, PFRDA has made compliance clearer, governance stronger, and pension fund operations more transparent and accountable.