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Pension funds may get to invest abroad

By P Vaidyanathan Iyer

May 05, 2003

The finance ministry has decided to allow pension funds to invest abroad and create overseas financial assets.

At present, no provident funds, including the labour ministry-managed Employees Provident Fund, gratuity or superannuation funds, are allowed to invest in overseas markets.

According to finance ministry sources, pension assets could include investment in the overseas market to help the funds diversify their portfolio. This would also help them to reduce volatility in returns, they said.

The sources, however, said the finance ministry had not yet taken a final view on the ceiling for overseas investment by pension funds. There could be separate limits for overseas debt and equity investments, they added.

The move will take the rupee a step closer to capital account convertibility. Finance Minister Jaswant Singh on January 10 announced a series of measures, including doubling the foreign investment ceiling for mutual funds to $1 billion.

He had, simultaneously, allowed individuals and corporates to invest in foreign companies that had at least 10 per cent holding in a listed Indian company.

The finance ministry sources said the government would soon set up a Pension Fund Regulatory and Development Authority, which would issue licences to pension funds and frame the rules of the business.

They said the regulator would float global bids to attract international pension fund majors to set shop in India.

It has already been decided that the PFRDA will issue licences to six pension funds to operate in India.

While five will be selected on a global basis, one licence will be set aside for a public sector fund, to be called Pension Fund Corporation of India, which is likely to be floated through equity contributions by banks and financial institutions.

The pension move

  • Pension funds to offer three schemes: safe, balanced and growth.
  • Net asset values to be announced daily.
  • Individuals can switch from one pension fund to another.
  • Premature withdrawals from the fund possible for unorganised sector.

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