India's Pension Fund Regulatory and Development Authority is on a mission to enhance investment options for private pension funds, aiming to deliver better returns for subscribers. Following the recent approval for fund houses to introduce customized pension schemes, the regulator is now considering expanding investment possibilities.
In an interview on Friday, S. Ramann, the chairperson of the Pension Fund Regulatory and Development Authority, disclosed that the regulator is exploring the idea of permitting pension funds to invest in gold and silver exchange-traded funds, venture capital funds, private credit, and alternative investment funds (AIFs). This move is aimed at ensuring individuals receive attractive returns from market instruments to build a substantial saving corpus for retirement.
Currently, most pension schemes primarily invest in debt and equity instruments. However, the regulator is contemplating relaxing regulations related to the marking-to-market of long-dated government and corporate bonds held by pension funds.
With the private pension fund industry managing assets worth 15.78 trillion Indian rupees ($178.77 billion) for approximately 80 million subscribers, the regulator has set a target to expand the subscriber base to nearly 300 million by 2030. To achieve this goal, the industry is actively working to attract new players. Financial firms like Bajaj Finance and Bank of Baroda are in discussions to enter the pension segment.
To further incentivize participation in the sector, the Pension Fund Regulatory and Development Authority has recently allowed private pension fund houses to offer personalized investment plans based on a subscriber's risk appetite. Fund houses can now offer schemes with up to 100% equity exposure, an increase from the previous cap of 75%, under the new framework.
However, to ensure consumer protection, fund houses must adhere to product suitability rules. These rules include considering factors like income, age, and socio-economic background before offering investment options. Additionally, the regulator plans to offer an extra commission of 0.1% of assets under management to entities where at least 80% of subscribers are new to the National Pension System.
With the continuous evolution of investment offerings and regulations in the Indian pension space, subscribers can anticipate a broader range of investment opportunities and potentially higher returns on their retirement savings.
