Pension regulator PFRDA has allowed pension fund managers to invest in both mutual fund units and infrastructure debt fund (IDF) bonds, but with a note of caution over the risk involved in such an exposure.
The move comes after the finance ministry last year asked financial regulators such as Irda and PFRDA to help fund infrastructure sector to revive economic growth after banks expressed inability in increasing their exposure to long-gestation projects.
The Pension Fund Regulatory and Development Authority (PFRDA) said in an internal circular that pension fund managers (PFMs) can invest in IDFs units or bonds having a rating of ‘AA’ or more from two credit rating agencies.
Even after favourable ratings, PFRDA said in a circular that PFMs should "undertake their own due diligence for assessment of risks associated with the securities before investing."
Recently, Indian financial institutions led by ICICI Bank, IIFCL and IL&FS had launched IDFs, which will bunch their investments in infrastructure projects into mutual fund units or bonds and sell them to other investors. While these units or bonds may offer attractive returns, their appetite for such investment is low among retail investors. However, long-term investors such as insurance companies, pension funds and EPFO could be interested in such investment.
According to a finance ministry estimate, there is a window for insurance and pension funds to invest about R1 lakh crore in IDFs. Irda has already allowed insurers to invest in IDFs, while EPFO is also considering a similar proposal that has to be approved by its central board of trustees (CBT) later this year. Earlier this year, the PFRDA allowed fund houses to invest directly up to 5% in equities of a company as investment in equity-oriented mutual funds proved costly.
During 2012-13, the national pension system (NPS) regulated by PFRDA has posted 12-14% return on most of schemes except the equity-oriented scheme. The return on the scheme for the central government employees were at 12.39%, while it was 13% for state government and 13.4% for the Swavlamban scheme offered to workers of informal sector.
The total corpus of NPS doubled to R33,000 crore at the end of