India’s pension sector is poised for a structural shift, with the foreign direct investment (FDI) limit set to be raised to 100%, in line with the insurance sector.
The move follows Parliament’s approval on Wednesday to increase the FDI cap in insurance from 74% to 100%, a reform aimed at attracting higher foreign capital inflows, enabling the adoption of global governance and innovation standards, and deepening insurance penetration across the country.
Since FDI limits in the pension sector are statutorily linked to those in insurance, the higher cap will automatically extend to pension fund management as well. However, it will require a series of regulatory notifications and guidelines from the Department for Promotion of Industry and Internal Trade, the Reserve Bank of India and the Pension Fund Regulatory and Development Authority (PFRDA) before it comes into effect.
Statutory Link
Officials familiar with the process point out that certain regulatory hurdles must be addressed before fully foreign-owned pension funds can operate under the National Pension System (NPS). Current PFRDA norms require pension fund managers to have prior experience in managing debt and equity funds in India and to be registered with an Indian regulator.
Most pension funds operating under the NPS today are joint ventures between foreign players and Indian partners, hence these issues are taken care of. Any foreign entity seeking to enter independently would need to comply with these conditions unless the norms are relaxed. Resolving these issues is expected in the coming months, sources said.
Market Expansion
Despite being less mature than the insurance industry, the pension sector in India is expanding rapidly. Assets under management stood at Rs 16.2 lakh crore as of October 31, 2025, with recent growth largely driven by the private sector as government-led expansion reaches saturation.
At present, there are ten pension fund managers in operation, including two from the public sector. Key players include UTI Pension Fund, HDFC Pension Fund, ICICI Prudential Pension Fund, Kotak Mahindra Pension Fund, Aditya Birla Sun Life Pension, Tata Pension Fund, Axis Pension Fund and DSP Pension Fund.
To operationalise full foreign ownership, the Department for Promotion of Industry and Internal Trade (DPIIT) will issue a notification clarifying that pension sector FDI has been raised to 100% to align with insurance. The notification will also spell out the extent of investment permitted under the automatic route and the approval route. Subsequently, the RBI, acting under the Foreign Exchange Management Act, 1999, will frame rules governing foreign inflows, including investment modes, pricing guidelines and reporting requirements. The final step will involve PFRDA issuing detailed guidelines on the calculation and treatment of FDI in pension fund entities.
The legal basis for linking pension FDI to insurance lies in Section 24 of the PFRDA Act, 2013, which mandates that pension sector caps mirror those in insurance. Accordingly, when the Insurance (Amendment) Act, 2021 raised insurance FDI to 74%, pension funds followed suit. The latest increase to 100% now sets the stage for deeper foreign participation in India’s growing pension market, analysts reckon.
