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The Nigerian Stock Exchange (NSE) has introduced a pension index that will serve as benchmark to gauge the performance of the country’s pension industry and pension fund managers.
According to the NSE, the creation of the NSE Pension Index will encourage the development of other products such as Exchange Traded Products (ETP’s) and Index Futures.
The Index also provides a tracking mechanism for pension fund administrators (PFAs), custodian to the PFAs (CPFA) and others that follow the National Pension Commission (PENCOM) guidelines.
The NSE Pension Index includes the top 40 companies in terms of market capitalisation and liquidity. Adjusted market capitalisation of a listed company is the number of its listed shares, multiplied by the closing price of that company, multiplied by a capping factor.
The index values, which would be available as from January 2, 2013 was exposed to the investing public at the weekend. The index has a base of 1000 as at December 31, 2012.
The index is also expected to serve as a benchmark for measuring performance and reporting performance to RSA Holders.
The stocks that formed the index were picked based on their market capitalization from the most liquid sectors in line with the pension reform guideline. Also companies to be included in the index must have free float factor of at least five per cent, making the index the first index on the NSE that gave consideration to free float.
Also, companies that formed the index must have paid dividend or bonus at least once in the last five years.
The NSE Pension Index is designed as a total return index so that it can accurately measure equity portfolio performances, which capture returns from dividends, price changes and realized gain.
However, as a total return index, the pension index will only be available at the end of day as there would be no intra-day values.
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