What is Dual Valuation Framework?

The Pension Fund Regulatory and Development Authority (PFRDA) has proposed a “dual valuation framework” for government securities (G-Secs) held in National Pension System (NPS) and Atal Pension Yojana (APY) schemes. The move aims to stabilise Net Asset Values (NAVs), reduce short-term volatility, and better align long-term pension funds with India’s infrastructure financing goals.

Objective Behind the Dual Valuation Model

According to the consultation paper released on October 22, the dual valuation mechanism would allow government securities to be valued on both “mark-to-market” (MTM) and “accrual” bases. This hybrid method intends to provide a more realistic picture of pension wealth during long accumulation phases while protecting subscribers from daily market fluctuations in interest rates. The proposed model aligns with PFRDA’s goal of ensuring steady, comprehensible pension fund growth for investors over periods spanning 20 to 40 years.

Current System and Its Limitations

At present, NPS investments are entirely valued on an MTM basis, meaning pension funds must declare scheme NAVs daily, reflecting real-time market conditions. This often causes temporary swings in pension wealth due to short-term changes in bond yields. As defined contribution schemes, NPS and APY place the full investment risk on subscribers, making these fluctuations a concern for long-term investors who may not benefit from interim market gains or losses until retirement.

Proposed Changes to Government Securities Valuation

The PFRDA proposes moving part of the G-Sec holdings—especially long-dated and illiquid securities—into a “Held to Maturity” (HTM) category under the accrual method. Under this system, interest income and amortisation of discounts or premiums will be recorded daily, but without reflecting transient market price shifts. This approach will shield NAVs from short-term volatility while giving pension funds flexibility to manage more liquid securities for active portfolio optimisation.

Related GK Facts

• The National Pension System (NPS) was launched in 2004 for government employees and opened to all citizens in 2009.
• APY, introduced in 2015, targets unorganised sector workers, offering fixed pensions backed by government contributions.
• “Mark-to-market” valuation reflects current market prices, while “accrual” valuation records income as it is earned over time.
• Government securities (G-Secs) are long-term debt instruments issued by the Indian government to fund public spending and infrastructure.

Impact on Subscribers and Long-Term Investments

The dual valuation model is expected to smoothen pension wealth depiction during the accumulation phase, reducing confusion caused by daily NAV fluctuations. It also encourages pension funds to support long-gestation infrastructure projects by holding stable, long-term government debt. From a macroeconomic perspective, the proposal could channel more consistent capital flows into productive assets, enhancing economic growth and job creation. The PFRDA’s initiative reflects a broader push to align India’s pension fund strategy with sustainable, long-term financial stability and infrastructure development.