Pension Fund Regulatory and Development Authority (PFRDA) to grant Pension Funds (PF) autonomy in using funds for innovative financial methods: Statement from Chairperson
The Pension Fund Regulatory & Development Authority (PFRDA) is planning to increase the investment of pension funds in long-gestation infrastructure assets. This move comes as the chairperson of PFRDA, Sivasubramanian Ramann, expressed his expectations for such an expansion.
Currently, pension funds (PFs) are allowed to invest in a wide range of assets, including the top 250 listed companies by full market capitalisation, securities issued for the development, construction, operation, and maintenance of infrastructure, infrastructure bonds, debt securities of InvITs and REITs, and infrastructure debt funds. The majority of the assets are invested in fixed income instruments.
With a focus on long-term assets, investment in long-gestation infrastructure assets is a natural choice for pension funds. The PFRDA selects government agencies, public sector undertakings, and infrastructure companies to finance infrastructure projects through the development of long-term investment funds.
The AUM (Assets Under Management) of the combined pension systems stands at ₹14.4 lakh crore, with the NPS pool directed towards the infrastructure sector amounting to ₹2.3 lakh crore. This NPS pool constitutes approximately 16% of the total AUM of pension funds.
Sivasubramanian Ramann also mentioned the possibility of looking at some layer of held-to-maturity bonds for pension funds. Additionally, the PFRDA is working on easing frictional issues preventing pension funds from investing in Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (InVIT).
The chairperson noted a gap between what is permitted under PFRDA's investment guidelines and what gets operational on the ground. To manage both customer requirements and fund utilization, the remaining investments could be available-for-sale investment classification.
As of March 2025, the combined subscriber base under NPS (National Pension System) and APY (Atal Pension Yojana) reached 8.4 crore. Pension funds are also permitted to invest in commercial mortgage-based securities or residential mortgage-based securities, providing diversification through pooled retail loan exposures.
PFs can make investments in infrastructure companies rated not less than 'A' along with an Expected Loss Rating of 'EL1'. The work to ease the frictional issues is currently ongoing and was discussed by Sivasubramanian Ramann in a keynote address at the National Bank for Financing Infrastructure and Development's annual infrastructure conclave.
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