Pension plan to be limited to index funds

The proposed PFRDA Bill, aimed at setting up a regulator and managing the new pension system, will not allow pension schemes to invest their money in individual stocks.

The Pension Fund Regulatory and Development Authority Bill (PFRDA), which has already been vetted by the law ministry, will only allow pension fund contributions to be invested in index funds in the stock markets, interim Pension Regulator D Swarup said here.

Existing pension products, offered by mutual funds and insurance companies, would have to comply to new norms for the proposed pension sector, Swarup said. Currently, these funds invest subscribers' money in individual stocks also.

While returns from index funds were not as high as from individual equities, they were less prone to volatility, Swarup said.

However, there would also be a provision a for risk-free scheme, which would invest all its money in government securities, he said.

The minimum initial paid up capital requirement in the proposed pension sector would be around Rs 10 crore, needed for mutual funds, and Rs 100 crore, prescribed for insurance companies, he said.

It was expected to be less than Rs 100 crore but more than Rs 10 crore, Swarup said.

Though mutual funds are regulated by market regulator Sebi and insurance companies by Irda, there was a need of specialised pension regulator, Swarup said.