The Pension Fund Regulatory and Development Authority (PFRDA) is considering allowing National Pension System (NPS) funds to invest directly in infrastructure projects to broaden investment avenues and improve long-term returns, chairman Sivasubramanian Ramann told FE on Friday.
The move will potentially open a dedicated source of long-term funding for India’s burgeoning infrastructure sector and supplement bank funding.
Currently, pension funds invest in infrastructure assets through “InvITs” (Infrastructure Investment Trusts).
To steer this transition, “PFRDA will set up an expert committee to examine asset diversification and recommend how new classes, including direct project investments, can be introduced in phases,” Ramann said. While global best practices will be studied, investments will remain focused on the domestic economy.
Earlier, the PFRDA expanded the Alternative Investment Fund (AIF) bucket to include venture capital, infrastructure and start-up funds, part of a strategy to safeguard returns in a declining interest-rate environment.
Financial Performance and the Need for Diversification
With government bonds yielding 6.5–7% and equity returns volatile, sustaining a long-term blended return of about 10% will require diversification into newer asset classes, Ramann said.
Assets under management under NPS for the government sector and the non-government sector stood at around Rs 16 lakh crore as on November 30, 2025. Since its inception in 2004, returns under NPS have averaged around 10%.
A key issue under review is whether pension funds can participate earlier in large infrastructure projects alongside banks that typically provide initial long-term debt. “We may invest directly in infrastructure projects. Canadian and Norwegian pension funds are already making such investments in India,” he said. PFRDA is examining whether pension funds can join bank-led consortia financing projects, such as ports or participate directly, as global peers do. Until internal capabilities are developed, joining lending consortia may be the first step.
For now, the regulator is proceeding cautiously. Exposure to AIFs has been capped at 1% of assets, with any increase dependent on experience and performance. “We will exhaust the 1%, learn from it, and only then consider moving to 2%,” Ramann said. A similar phased approach will apply to direct infrastructure investments, he said.
Future Outlook for Alternative Assets
Over the next five years, the alternatives basket could expand meaningfully, with new asset classes emerging. Infrastructure is a growing area of interest, though current exposure remains limited, with roads and similar projects forming only a small share. PFRDA is also assessing the risks associated with REITs and InvITs to avoid surprises. Over time, direct infrastructure investments, REITs and InvITs could evolve into separate asset classes within pension portfolios, he said.
Explaining the broader rationale behind the decisions, Ramann said regulators entrusted with citizens’ savings must ensure adequate investable assets that deliver “reasonable, above-average and safe returns.” “AIF is only one such instrument. The key is diversification and the search for new asset classes,” he said, stressing the need to plan at least a decade ahead.
To steer this transition, PFRDA will set up an expert committee to examine asset diversification and recommend how new classes, including direct project investments, can be introduced in phases. While global best practices will be studied, investments will remain focused on the domestic economy.
Recent reforms to broaden investment and exit options, he said, aim to enhance returns and make the NPS more attractive to subscribers.