Pension funds will soon be allowed to invest in IPOs: PFRDA Chairman

Regulator will come up with comprehensive guidelines on issuer's track record and other aspects within a week

Pension fund managers will soon be allowed to invest in initial public offerings (IPOs) as it’s a “good opportunity” to put money into companies at an early stage, Pension Fund Regulatory and Development Authority (PFRDA) Chairman Supratim Bandyopadhyay told Business Standard on Tuesday. They will also be able to invest in follow-on public offers and offer for sale of companies.

“Pension funds have been missing out on good opportunities to invest in IPOs. We have seen good companies coming out with their IPOs that provide an opportunity to invest at an early stage and benefit from their growth,” Bandyopadhyay said.

Comprehensive guidelines on the matter are expected within a week. These would include conditions such as the company’s profitability for a certain number of years and dividend payment record, among others, that will be similar but not same as the guidelines set by the insurance regulator, Bandyopadhyay said. There will also be a condition on the size of the IPO they can bid for, he added.

The move by the pension fund regulator comes at a time when most IPOs are seeing stellar returns. GR Infraprojects, a road construction company, saw its shares list at over two times its issue price on Monday, while Clean Science and Technology, a specialty chemical maker, listed at a 98 per cent premium over its issue price.

The announcement will open the door for seven pension fund managers -- SBI Pension Funds, LIC Pension Funds, UTI Retirement Benefit Pension Fund, HDFC Pension Fund, ICICI Prudential Pension Funds Management Company, Kotak Pension Fund, and Aditya Birla Sun Life Pension Fund -- to invest in the upcoming IPOs. These funds are managing assets of Rs 6.2 trillion, Bandhopadhyay said. SBI, LIC, and UTI are the top three funds as they get the bulk of their share from the government. One more pension fund, Axis Mutual Fund, has also taken a licence and is awaiting the Reserve Bank of India’s approval.

Pension funds will also be allowed to invest in BSE-200 and NSE-200 companies even if they are not a part of the futures and options (F&O) segment, Bandyopadhyay said. Currently, they can invest only in those scrips that are part of the F&O segment, and have a market cap of Rs 5,000 crore.

In the last 12 years, equity investments have delivered a compound annual growth rate of 11.3 per cent, he said.

The regulatory body is also considering allowing pension fund managers to invest in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trust (InvITs). “These are well rated instruments,” he said.