Pension Fund money may enter index funds only

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

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

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

While index funds do not provide as much returns as individual equities, they are not as prone to volatility, Swarup said.

However, there would also be a provision 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 will be somewhere between Rs 10 crore, needed for mutual funds, and Rs 100 crore, prescribed for insurance companies, he said.

It is 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 sepcialised pension regulator, Swarup said adding his viewpoint was supported by Irda chairman C S Rao.

As per the PFRDA proposal, there would be at least one pension fund in the public sector.