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  • ICICI PRUDENTIAL PENSION FUNDS

    MANAGEMENT COMPANY LIMITED

    SCHEME E TIER I

    SCHEME C TIER I

    SCHEME G TIER I

    SCHEME E TIER II

    SCHEME C TIER II

    SCHEME G TIER II

    ANNUAL REPORT 2014-2015

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    CONTENTS

    1. BACKGROUND

    a) THE TRUST ............................................................................................... 3

    b) SPONSOR ................................................................................................. 3

    c) PENSION FUND MANAGEMENT COMPANY ............................................ 4

    d) INVESTMENT STRUCTURE OF THE COMPANY ........................................ 4

    2. BASIS AND POLICY OF INVESTMENTS ...................................................... 4

    3. ECONOMIC SCENARIO ................................................................................ 5

    4. INVESTMENT OBJECTIVE OF THE SCHEME ................................................ 6

    5. SCHEME PERFORMANCE AND OPERATIONS ............................................. 7

    6. LIABILITIES AND RESPONSIBILITIES OF THE COMPANY ......................... 10

    7. FINANCIAL STATEMENTS OF THE SCHEMES.11

    a) Scheme E Tier I - Equity market instruments

    b) Scheme C Tier I - Credit risk bearing fixed income instruments

    c) Scheme G Tier I - Government securities

    d) Scheme E Tier II - Equity market instruments

    e) Scheme C Tier II - Credit risk bearing fixed income instruments

    f) Scheme G Tier II - Government securities

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    To the Subscribers,

    ICICI Prudential Pension Funds Management Company Limited (the Company) presents

    annual report along with the audited financial statements of the Schemes for the year

    ended March 31, 2015.

    During the year ending March 31, 2015, the Company managed the following 6 schemes

    under the National Pension System (NPS):

    Tier I Scheme E - Equity market instruments

    Tier I Scheme C - Credit risk bearing fixed income instruments

    Tier I Scheme G - Government securities

    Tier II Scheme E - Equity market instruments

    Tier II Scheme C - Credit risk bearing fixed income instruments

    Tier II Scheme G - Government securities

    1. BACKGROUND OF THE TRUST, SPONSORS AND PENSION FUND

    MANAGEMENT COMPANY

    a) THE TRUST

    Interim Pension Fund Regulatory and Development Authority (PFRDA) was established

    by the Government of India on August 23, 2003 to promote old age income security by

    establishing, developing and regulating pension funds, to protect the interests of

    subscribers to schemes of pension funds. The Pension Fund Regulatory & Development

    Authority Act was passed on September 19, 2013 which was notified on February 01,

    2014 thereby according statutory powers to PFRDA.

    The National Pension System Trust (NPS Trust) was established by PFRDA on February

    27, 2008. The NPS Trust has been constituted for taking care of the assets and funds

    under the National Pension System (NPS) in the interest of the beneficiaries

    (subscribers).

    b) SPONSOR

    The Company is sponsored by ICICI Prudential Life Insurance Company Limited

    (`Sponsor) and it is also a wholly owned subsidiary of the Sponsor.

    ICICI Prudential Life Insurance Company Limited, a joint venture between ICICI Bank

    Limited and Prudential Corporation Holdings Limited, was incorporated on July 20, 2000.

    It is licensed by the Insurance Regulatory and Development Authority (`IRDA) for

    carrying out life insurance business in India.

    The Sponsor reaches its customers through 547 offices in 480 locations as at March 31,

    2015. At March 31, 2015, the Sponsor had 10,863 employees and 132,463 advisors to

    cater to the needs of its customers. Assets under management of the Sponsor grew from

    ` 805.97 billion at March 31, 2014 to ` 1,001.83 billion at March 31, 2015. The Sponsor

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    reported a profit after tax of ` 16.34 billion in FY2015 as against profit after tax of ` 15.67

    billion in FY2014.

    c) PENSION FUND MANAGEMENT COMPANY

    The Company was incorporated on April 22, 2009 and received certificate to commence

    business on April 28, 2009. The Company is appointed as a Pension Fund Manager

    (PFM) by the NPS Trust for the management of pension Schemes for private sector.

    The Company has recorded a growth of 108.7% in Assets Under Management (AUM) of

    the Schemes for the financial year ending March 31, 2015. The AUM at March 31, 2015

    was ` 3,690.0 million up from ` 1,768.2 million at March 31, 2014.

    d) INVESTMENT STRUCTURE OF THE COMPANY

    The Company has a multi-tiered investment structure to achieve adequate segregation

    between control and execution.

    The Board of Directors of the Company approves the Investment Policy and Risk

    Management Policy, reviews investments and oversees the risk management.

    The Investment Committee (Committee) of the Board is responsible for implementation

    of Investment Policy, building investment strategy, monitoring investment decisions and

    returns.

    The Investment team, headed by Chief Executive Officer and Chief Investment Officer, is

    responsible for market tracking, investment decisions and deal negotiation & conclusion.

    The Investment team is also responsible for research, portfolio management and trading.

    An independent Investment Operations team looks after settlement, investment

    compliance, valuation, accounting, net asset value (NAV) calculation and statutory and

    management reporting. The activities of the Investment Operations team are clearly

    segregated as Accounting and NAV computation, Treasury and Mid Office.

    An external Custodian, appointed by PFRDA, is responsible for custody of the assets,

    tracking corporate actions and also valuation of securities.

    Daily investment activities including NAV computation is subject to concurrent audit

    carried out by an independent audit firm.

    2. BASIS AND POLICY OF INVESTMENTS

    Investment Strategy

    The overall investment strategy is focused on ensuring adequate returns to subscribers

    consistent with protection, safety and liquidity of funds while complying with the

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    applicable investment guidelines as prescribed under IMA. The investment strategy is

    guided by principles of prudent portfolio management and risk management.

    Pursuant to the investment guidelines issued by PFRDA Scheme E is an index fund

    replicating NSE Nifty 50 index. The investment philosophy of the scheme can be

    summarized as close replication of the underlying index so as to achieve returns as close

    to the index as possible with low tracking error.

    The objective of fixed income fund management is to meet return expectations of

    subscribers through investment in high credit fixed income securities, managing interest

    rate risk, credit risk and liquidity risk.

    The funds under the Scheme C (Credit risk bearing fixed income instruments) are

    invested in fixed deposits, corporate bonds and liquid instruments following the scheme

    objective and investment universe as defined by PFRDA. Investments in corporate bonds

    are made in high quality long term debt following internal due diligence and credit rating

    from independent credit rating agencies.

    The funds under the Scheme G (Government securities) are invested in long term central

    and state government securities as per the scheme objective. The scheme is managed

    actively based on interest rate view backed by extensive research and analysis.

    3. ECONOMIC SCENARIO

    Equity review - FY2015

    Indian equity market (Nifty) gained 27% in FY2015 primarily due to the strong and

    favorable electoral mandate and expectations on the reforms agenda. The market

    sentiments were also aided by benign global commodity prices and falling crude prices

    during the FY2015. While most of the Nifty gains were front ended (H1 FY2015), the

    equity market gained in the H2 FY2015 as Japan and Eurozone implemented the

    Quantitative Easing programme; which led to further inflows in the domestic markets, in

    addition to two surprise repo rate cuts by RBI on softening of CPI inflation and

    improvement in the quality of fiscal deficit. The foreign capital inflows into Indian equities

    were ~US$ 18 billion during FY2015 as against the capital outflows of ~US$ 4 billion by

    domestic institutional investors in the same period.

    Debt review - FY2015

    The yield on 10 year benchmark government security declined significantly from 8.80%

    on March 31, 2014 to 7.74% on March 31, 2015. The strong and favorable electoral

    mandate in the general elections and expectations on the reforms agenda saw the bond

    market cheer and pick up in volumes. The US Federal Reserve ended their Quantitative

    Easing programme which was partially offset by the quantitative easing by the Bank of

    Japan and European Central Bank. The new Government presented its first full year

    Union Budget for FY2016 maintaining the governments ongoing push toward supply

    side reforms and boosting infrastructure spending, while slightly relaxing the deficit

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    reduction plan. RBI cut the repo rate twice by 0.25% each in January and March on the

    back of softening of inflation. As a matter of fact CPI inflation softened to 5.2% in March

    2015 vs 8.3% in March 2014 primarily due to lower manufacturing