Domestic pension fund flows into equities at record high, shows data

A record amount of pension money may be finding its way into the stock market, if buying figures in the National Stock Exchange (NSE) data are any indication.

 

Category inflows touched ₹37,409 crore for the three months ending September 2025, shows an analysis of NSE data. This is the highest in rolling three-month data going back to 2016. For comparison, it was ₹4,509 crore in September 2024, and ₹894 crore in September 2016.

 

The data is based on the NSE monthly reports under the category of “New Pension System” and may not be fully representative of activity across bourses. Similar figures for foreign investors, for example, show differences with the consolidated numbers across exchanges; but it can be considered indicative of the trend, suggest experts. The total net buying in the first six months of the ongoing financial year 2025-26 (FY26) was ₹68,678 crore, compared to ₹7,447 crore in the same period of FY25. 

 

Guidelines that have increased the equity ceiling from 15 per cent to 25 per cent for a number of schemes under the National Pension System (NPS) are likely to have played a role, according to industry experts. The changes in the NPS ceiling effective from April 2025 apply to its entire corpus rather than incremental inflows as in the case of the Employees’ Provident Fund Organisation (EPFO), according to two people familiar with the matter. The consequent rebalancing may have led to a spike in allocations, they said. Monthly flows to NPS would determine activity levels once this rebalancing is completed.

 

More people are coming into the NPS, and the demographic profile of the country means that new joinees are often younger and more willing to make higher allocations to equity, noted Vivek Iyer, partner and financial services risk advisory leader, Grant Thornton Bharat. This can lead to increased stock market activity, and investments will only grow over the next 10-15 years, according to Iyer.

 

“The amount of sway over equity markets of pension funds will only increase over a period of time,” he said.

 

Increased attempts at awareness have helped inflows but the product has not got to a level of mass adoption relative to India’s population, according to a fund manager for the NPS. There is a long runway for pension products to grow, and incremental penetration would determine the influence of pension money on equity markets over the long term.

 

“All will depend on the flows… the participation (of individual investors) is quite low,” said the person.

 

A new option of the NPS, separate from the one mentioned above, allows for certain schemes to have 100 per cent equity exposure, Business Standard had reported earlier.

 

In addition to the NPS, the EPFO has also been investing in the equity markets from 2015 when it allocated 5 per cent of incremental flows to exchange traded funds (ETFs). An ETF tries to match the returns of a benchmark index, like the Nifty 50 or the BSE Sensex, through passive allocation to the same stocks as the index rather than actively picking stocks that can also result in underperformance. The EPFO’s ETF allocation rose to 10 per cent in 2016, and to 15 per cent in 2017.

 

The total investment in ETFs was ₹1.97 trillion as of FY23. This rose to ₹2.35 trillion as of FY24. This would suggest that EPFO investments are also in excess of ₹38,000 crore a year. The EPFO’s 2024-25 annual report is yet to be released.

 

With inputs from Mayank Patwardhan