Category: Personal Finance

What are the investment options under NPS?

When subscribing to the CRA system under NPS, an NPS member must select a Pension Fund Manager (PFM) and also a scheme choice. To open an NPS account one needs to be a citizen of India, whether a resident or a non-resident, must be between the ages of 18 and 60 at the time of registration to the POP/ POP-SP. While filing the registration form, applicants must follow the Know Your Customer (KYC) guidelines before submitting the duly filled application form along with the required documents.

The active member or subscriber has a number of alternatives to opt for. Multiple PFMs, investment choices (Auto or Active), and four asset classes (Equity, Corporate Debt, Government Bonds, and Alternative Investment Funds) are available in NPS. The account holder initially picks the PFM, after which he or she can choose from any of the investment alternatives. The subscriber must choose between Active Choice and Auto Choice for his or her investment strategy.

NPS Active Choice: Individual Funds

Under this sort of investment option, the subscriber has the flexibility to actively choose how his or her money is allocated based on personal preferences. The PFM, Asset Class, and percentage allocation to be undertaken in each scheme of the PFM must be provided by the subscriber. Under a single PFM, the allocation is to be selected from the following four asset classes (equity, corporate debt, government bonds, and alternative investment funds), according to PFRDA.

• Asset class E – Equity and related instruments
• Asset class C – Corporate debt and related instruments
• Asset class G – Government Bonds and related instruments
• Asset Class A – Alternative Investment Funds including instruments like CMBS, MBS, REITS, AIFs, Invlts, etc.

As seen below, a subscriber can pick various Asset Classes under a single PFM:

• Up to the age of 50, you can deposit up to 75 percent of your overall asset allocation towards equity.
• From the age of 51 onwards, the maximum allowed equity investment will be determined by the equity allocation chart presented below. Alternative Investment Funds cannot contribute more than 5% of their investments. The overall allocation throughout asset classes E, C, G, and A must be 100 percent.

Equity Allocation Matrix for Active Choice

NPS Auto Choice: Lifecycle Fund

Investors who have lack of necessary skills to administer their NPS contributions can opt for this choice provided by NPS. The contributions under this option will be placed in a life-cycle fund. A pre-defined portfolio (which fluctuates with the subscriber’s age) will choose the percentage of funds invested across three asset classes. According to the official website of NSDL “A subscriber who wants to automatically reduce exposure to more risky investment options as he/she gets older, Auto Choice is the best option. As age increases, the individual’s exposure to Equity and Corporate Debt tends to decrease. Depending upon the risk appetite of Subscriber, there are three different options available within ‘Auto Choice’ – Aggressive, Moderate, and Conservative.” The following are the specifics of these funds:

LC75 – Aggressive Life Cycle Fund

Equity investments are limited to 75 percent of the total assets in this Life cycle fund. The equity investment allocation begins at 75% until the subscriber reaches 35 years of age, then steadily decreases as the subscriber matures.

LC50 – Moderate Life Cycle Fund

Equity investments are limited to 50% of the total assets in this life cycle fund. The equity investment allocation begins at 50% until the subscriber reaches 35 years of age, then steadily decreases as the subscriber matures.

LC25 – Conservative Life Cycle Fund

Equity investments are limited to 25% of the overall assets in this Life cycle fund. The equity investment allocation begins at 25% until the subscriber reaches 35 years of age, then steadily decreases as the subscriber matures.

1. Shriram Transport Finance Company:

For this NBFC company, Edelweiss in its latest report has retained the previous recommendation ‘Buy’ and also raised the price target to Rs. 1700. The last traded price for the Shriram Transport is Rs. 1344.55, this suggest an upside potential of over 26%.

Q1Fy22 performance: Results mostly in line with Edelweiss’ estimates

The NBFC company fared as per the estimates of the brokerage in terms of both revenue as well as PPOP. Nonetheless, PAT or profit after tax came in lower due to higher credit cost. Disbursements at the company were a positive and registered just 15% decline on a sequential basis because of the strong line up in the previous quarter, hence a better performance in comparison to peers.

Asset quality deteriorated though at a lower rate as was foreseen by the brokerage house. Collection efficiency of the NBFC major with focus mainly in vehicle financing also improved month on month and came in at 94%.

Double digit AUM growth, reduced credit cost, better disbursements some of the key triggers

The management has guided for a double digit AUM growth as well as lower credit cost in FY22 as against FY21. Also, it is mulling merger of the group companies’ to realize cost benefit and cross-sell synergies.

Valuation and outlook: The brokerage firm hails the view that Shriram Transport is well placed to capture the revival in the CV cycle due to (a) it being the largest player in the CV financing space, (b) lower-than-expected restructuring, and (c) better than-expected asset quality. “The stock is trading at a significant discount of approximately 50% to Cholamandalam, which could reduce given the company’s growth and asset quality trajectory. We Maintain ‘BUY’ rating with a target price of INR1,700, valuing it at 1.7x FY23E ABPS”, said Edelweiss.

2. Zydus Wellness:

Zydus Wellness’ started off its journey into the consumer wellness segment with the Sugar Free product it launched in the year 1988. And now the company has as many as 7 brands under its bouquet namely Sugarlite, Complan, Sugar Free, Glucon-D, Everyuth, Nycil and Nutralite.

After its Q1FY22 results, Edelweiss has maintained a ‘Buy’ on the scrip of Zydus Wellness for a target of Rs. 2673 per share. The stock last traded at a price of Rs. 2144.90, implying an upside of 24.62 percent from here.

Q1Fy22 results of Zydus Wellness:

The wellness company’s performance was steady for the period under review, the revenue went higher by 11% YoY with improvement in some of the brands including Complan, Sugar Free and Everyuth categories. Margin stood steady again despite an increase in milk as well as the price of palm oil. Also, to mitigate the impact of rising input costs, the company raised the prices by 2% during April -June quarter. Because of improving cost efficiency, EBIDTA also came in higher and operating margin also went up by a margin on a YoY basis. PAT or profit after tax improved significantly as the company went on reducing debt by a substantial amount to Rs. 450 crore from Rs. 1500 crore in the last year.

Valuation and outlook: “The brokerage maintains ‘BUY’ on Zydus Wellness and says in its report that “with the easing of lockdown restrictions, we expect ZWL to deliver stronger performance going forward, owing to its diversified portfolio, slew of new launches over the last two years and enhanced distribution reach. Given its lean balance sheet and negative working capital days, ZWL is trading at an attractive valuation of 37x/30x FY22/FY23E earnings. We reiterate ‘BUY’ rating on the stock and maintain target price of INR2,673/share”, said the brokerage firm.

Strong positives for the scrip of Zydus Wellness as viewed by the brokerage:

-Lean balance sheet with significant reduction in debt over the last one year

-Cost efficiencies

-Wide distribution network with over 5.5 lakh outlets, wider product portfolio

– Planning disintermediation i.e. mulling to directly service the market as other market players.

– Continuous replenishment model that will cut down on inventory.

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Disclaimer:

Stock market investments are risky and investments listed are taken from brokerage reports. These should not be construed as investment advice and one should always ascertain their risk profile and other measures before taking any stock market bet.