National Investment Fund
The proposal for operationalisation of the NIF was approved on 3rd November, 2005. Accordingly, the Department of Disinvestment issued a resolution on 23rd November, 2005 constituting ‘NIF’ with the following objectives, structure and administrative arrangements, investment strategy and accounting procedure:
The proceeds from disinvestment of CPSEs will be channelised into NIF, which is to be maintained outside the Consolidated Fund of India.
NIF will be professionally managed to provide sustainable returns to the Government, without depleting the corpus. Selected Public Sector Mutual Funds will be entrusted with the management of the corpus of NIF.
75% of the annual income of NIF will be used to finance selected social sector schemes, which promote education, health and employment. The residual 25% of the annual income of the Fund will be used to meet the capital investment requirements of profitable and revivable CPSEs that yield adequate returns, in order to enlarge their capital base to finance expansion/diversification.
Structure and Administrative Arrangements NIF will be operated by the selected Fund Managers under the ‘discretionary mode’ of the Portfolio Management scheme, which is governed by SEBI guidelines. The entire work of NIF will be supervised by Chief Executive Officer (CEO) of NIF, a senior officer of the Government. A part time Advisory Board consisting of three eminent persons, with the requisite expertise to be appointed by the Government, would advise the CEO on various aspects of the functioning of NIF Investment Strategy The broad investment strategy is to provide sustainable returns without depleting the corpus. The investment strategy for NIF will be formulated by the CEO based on the advice of the Advisory Board so as to ensure that Government has a hands-off relationship in terms of the actual investment to be done by the Fund Managers. Only broad guidelines are to be provided under the "discretionary mode" to the Fund Managers, within which individual investments would be made independently by the Fund Managers. More detailed guidelines specifying investment instruments and limits for investment in such instruments will be separately specified in the agreements to be entered into between the Fund Managers and CEO of NIF on behalf of the Government. Other operational details such as allocation of funds to the selected Fund Managers, negotiations of management fee and charges to be paid to the Fund Managers, etc. will be also decided by CEO based on the advice of the Advisory Board. Appropriate mechanisms for regular review and monitoring of the functioning of NIF, emerging market trends and future prospects will be instituted. Accounting Procedure The receipts from disinvestment of CPSEs will be deposited in CFI under the designated Head. Thereafter, these amounts would be appropriated from the CFI, with due approval, by the Department of Disinvestment and transferred to the selected Fund Managers through CEO of NIF. Income from NIF similarly be deposited in CFI and would be appropriated from it for specific purposes as per the scheme of appropriation approved from time to time by the Department of Expenditure. Fund Managers of NIF The following Public Sector Mutual Funds have been appointed initially as Fund Managers to manage the funds of NIF under the ‘discretionary mode’ of the Portfolio Management Scheme, which is governed by SEBI guidelines. These fund managers have been appointed for an initial agreement for two years, which is extendable on the basis of their performance. UTI ASSET MANAGEMENT CO.LTD. SBI FUNDS MANAGEMENT CO.PVT.LTD. LIC MUTUAL FUND ASSET MANAGEMENT CO.LTD. Launch The launching ceremony of National Investment Fund (NIF) took place on 6th October, 2007, and was presided over by the Finance Minister. This consisted of the following two activities: (a) Signing of the Portfolio Management Services Agreement by JS (Disinvestment) & Chief Executive Officer (CEO), NIF (on behalf of the Government) and CEO, of Selected Public Sector Fund Managers viz. UTI Asset Management Co.Pvt.Ltd., SBI Funds Management Pvt.Ltd. and LIC Mutual Fund Asset Management Co.Ltd. Separate Agreements were signed with each Fund Manager. (b) Handing over of cheques to the CEO of the three Asset Management companies. The total amount of Rs. 994.82 crore received from the sale of Government equity in PGCIL was handed over to the Fund Managers by the Finance Minister as per the allocation given below:
Including the proceeds from the disinvestment in REC, the corpus of NIF became Rs. 1814.5 crore. The pay out on NIF was Rs. 84.81 crore in the first year. The pay out received in the second year was Rs. 248.98 crore. Average income of first year and second year was 8.47% and 10.13% respectively. Thus, the average income was 9.36% against the hurdle rate of 9.25%. Restructuring of NIF In view of the deceleration of GDP growth due to global economic downturn coupled with unprecedented drought last summer, a reduced budgetary resource generation was anticipated by the Government. The Government, thus, approved (on 5th November 2009), a one-time exemption permitting full utilization of disinvestment proceeds deposited in the NIF for meeting the capital expenditure requirements of selected social sector programmes decided by the Planning Commission/Department of Expenditure. The status quo ante will be restored from April 2012.