Pension fund managers can now invest in alternative investment funds

New Delhi: The Pension Fund Regulatory and Development Authority (PFRDA) has allowed pension fund managers to invest in alternative investment funds or AIFs, further liberalising investment guidelines governing pension funds.

But the relaxation for the time being is limited to fund managers who invest the private sector corpus under the National Pension System (NPS).

PFRDA chairman Hemant Contractor said that pension fund managers can invest up to 2% of the funds in AIFs. “Up to 2% of the corpus of private sector pension funds can be invested in AIF category-1 and AIF category-2,” he said in a press conference.

Funds that have a positive spillover on the economy and receive some concessions from the government are categorized as AIF-1 and those funds where no incentives or concessions are given are classified as AIF-2.

The pension fund regulator has already included new instruments like infrastructure debt funds, real estate investment trusts and infrastructure investment trusts in the eligible investment list.

The investment options are being increased following the recommendations of a panel under G.N. Bajpai, which had suggested a major revamp in the NPS.

“The ceiling has been deliberately kept low to begin with. It is an investment which has risks but if used judiciously, can earn good returns. It will help in diversification of portfolio, as recommended by the Bajpai committee,” he said.

PFRDA’s decision comes at a time when returns from equity investments have tanked due to market volatility. Low bond yields have ensured that even returns from government securities have been low.

Total assets under management under NPS have crossed Rs.1.1 trillion, with more than 1.1 crore subscribers. Of the total corpus, around 89% of the funds is from the government sector and the remaining 11% from the private sector.