Indian pension managers request to relax bond investment guidelines

Retirement fund managers in India have asked the Pension Fund Regulatory and Development Authority to ease the cap on the purchase of corporate bonds with a maturity period of less than three years

The Pension Fund Regulatory and Development Authority (PFRDA) has recently received requests from pension fund managers seeking a relaxation of the guidelines that mandate the tenor of corporate bonds they can buy, according to a Bloomberg report.

 

The retirement fund managers asked the PFRDA to ease the cap on purchase of corporate bonds with a maturity period of less than three years, Bloomberg quoted some people familiar with the matter. The fund managers also requested permission to buy company debt rated by just one credit assessor. 

The requests were made in a recently held meeting by the Association of NPS Intermediaries (ANI). The ANI is a collective platform that brings together all stakeholders in the National Pension System (NPS) ecosystem.

 

 

The move emphasises the rising need for flexibility as fund managers look to maximise the returns on an increasing pool of household savings. According to the Bloomberg report, these assets (accumulated household savings channelled into the NPS) have tripled over the last five years on the back of India’s strong economic growth and rising investor participation.

Corporate debt dips amid asset surge

According to a March 2025 circular by the pension regulator, currently the investment in corporate bonds maturing in less than three years is capped at 10 per cent. Most of these securities need ratings from at least two credit agencies. 

 

Data from the NPS website shows that assets have increased over threefold, reaching ₹14.4 trillion. This has led to an increase in purchase of government bonds. Whereas the share of corporate bonds declined 23.7 per cent in the year ending March 2024, from 27.2 per cent during the same period last year, Bloomberg reported. This prompted the central bank to introduce a category tracking the sector’s ownership of sovereign debt in 2023.

Cap relaxation may widen bond scope

The request made by the retirement fund managers to ease the 10 per cent cap would provide another investment opportunity for the growing industry. While bonds issued by financial sector firms meet the dual-rating mandate, manufacturing firms often go for single ratings to cut costs. This limits the funds’ ability to invest in such bonds.

 

Investing in bonds rated by a single credit agency could compromise the quality of retirement fund portfolios. At the same time, investing in shorter-maturity bonds can also pose challenges for retirement funds in deploying the proceeds from those securities at favourable rates of interest.