The Hindu Business Line : Pension reforms draft moots three types of funds

The Pension Fund Regulatory and Development Authority's (PFRDA) guidelines, which will mandate this, are expected to be in place by January 2005, sources familiar with the development said.

The Finance Minister, Mr P. Chidambaram, has recently decided to retain the PFRDA to regulate the sector instead of bringing it under the jurisdiction of Insurance Regulatory and Development Authority.

The draft proposal for pension reforms has suggested the introduction of three types of funds for the Indian market. These are categorised as safe, balanced and growth. While safe funds would invest only in debt products, balanced and growth options would have equity exposures.

The growth option would initially be allowed to invest only in index funds that are passively managed, according to sources. "This removes the risk of aggressive fund management. Once risk management measures are firmly in place, the regulations can be amended to include non-index equity exposure as well," said a source.

Sources also confirm that foreign direct investments would be encouraged in the sector. They attribute this to the lack of experience that Indian fund houses have in running successful pension fund schemes. Approvals for retirement funds are expected to be given to companies based on two criteria - global assets and Indian assets.

"We are waiting to see what kind of regulatory proposals are finally accepted by the Ministry and the regulator. Pension funds and retirement products are our core business internationally and we have a lot of experience in running them in various countries globally. We would be one of the first ones to participate as soon as the guidelines are published," said Mr Sanjay Sachdev, Country Manager - India, Principal International Inc.

Global financial services companies that are already part of Indian market through joint ventures in the insurance industry as well as mutual fund asset management companies have been lobbying with the Government to bring about pension reforms that will allow them to offer retirement plans to the Indian market.

"It is good news that the Government has given the go ahead for the PFRDA.

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