FinMin mulls allowing more pension funds in equities

“... we are engaging with them (the Finance Ministry). It is receiving their active consideration. We expect to hear from them in a short time but I can’t say when exactly it will come,” Contractor said. At present, the Pension Fund Regulatory and Development Authority of India (PFRDA) is allowed to invest up to 15 per cent of the corpus into stock market.

The hike in investment limit into equity market is one of the recommendations of the G N Bajpai committee. The expert panel under ex-Sebi Chief was set up by PFRDA to review the investment guidelines for National Pension System (NPS) in the private sector. At present, NPS funds can be invested in government securities, corporate bonds and equities.

The Centre had introduced the New Pension System (NPS) in January 2004. Total assets managed under NPS are about Rs 82,000 crore, while the private sector’s contribution is about Rs 5,000 crore.

Moreover, retirement fund body EPFO is likely to invest Rs 5,750 crore in stock market funds in the current fiscal, as against the earlier plan of Rs 5,000 crore. This has been made possible as the Employees’ Provident Fund Organisation (EPFO) has estimated receiving Rs 1.15 lakh crore as incremental deposits during this fiscal as against the earlier projection of Rs 1 lakh crore. Earlier this year, EPFO had decided to invest 5 per cent of its incremental deposits in exchange traded funds (ETFs), which came to about Rs 5,000 crore.

Now, since the incremental deposits are estimated at Rs 1.15 lakh crore, the body’s investments in ETFs will also go up to around Rs 5,750 crore, a source said. In the first seven months of 2015-16, EPFO has invested Rs 2,322.1 crore in ETFs as part of its planned investment. EPFO entered stock markets on August 6 this year after government notified new investment norms allowing it to invest minimum of 5 per cent and up to 15 per cent of its incremental deposits in equity or equity related schemes.

Its apex decision making body the Central Board of Trustees (CBT), headed by the Labour Minister, is scheduled to meet on November 24. CBT is expected to consider the issue of relaxation in investment in private commercial banks, another source said. In this financial year, there has been a “serious mismatch” in demand-supply scenario of corporate credits, such as bonds issued by public and private companies, the source added. As per the new notification by Labour Ministry on the investment pattern, about 35-45 per cent of the incremental deposits needs to be invested in corporate credits. This now looks “very difficult” to achieve without compromising the rate of return on investments.

Hence, CBT will consider the proposal of allowing EPFO to invest in State Development Loans (SDLs), which are fetching a higher rate of return compared to corporate credits. SDLs are also a more secure investment option in the current market environment, as per the agenda listed for the meeting. Another proposal that the CBT will consider is that of allowing national e-payment gateway PayGov, in addition to the State Bank of India (SBI) and other nationalised banks, for collection of provident fund contributions by the employers, it added.