Wider Options for Retirement Plans

Team Money Today        Print Edition: April 2013

Your retirement corpus is set to turn 'aggressive', with regulators relaxing investment norms across different retirement-saving avenues such as Employee Provident Fund (EPF), National Pension System (NPS) and insurance pension schemes.

The Employees' Provident Fund Organisation (EPFO) is considering investing in AAA-rated corporate bonds of all companies. At present, EPFO invests in bonds issued by government-owned companies and only seven private companies.

The move could help generate higher returns on funds managed by the EPFO as well as help strengthen the Indian corporate bond market. Corporate bonds usually offer higher interest than government bonds.

The Pension Fund Regulatory and Development Authority (PFRDA), which regulates the NPS, has allowed fund managers to directly invest in stocks instead of just investing in index funds that replicate the composition of market indices. However, fund managers can invest only in stocks that are eligible for trading in the derivatives markets.

"With fund management fee (for the NPS) going up to 0.25 per cent, fund managers can afford the cost of investing directly in stocks," said PFRDA chairman Yogesh Agarwal.

The investment norms for life insurance schemes, including pension plans, have also been relaxed with more scope for investments in infrastructure debt funds and corporate bonds (with at least AA rating).

The Insurance Regulatory and Development Authority of India has reduced the mandatory investment in government bonds from 50 per cent to 40 per cent for insurance policies other than equity-linked plans.

"Earlier, investment in tools other than AAA-rated bonds were limited to a maximum of 25 per cent of the total investment in rated instruments such as corporate bonds, commercial papers and certificate of deposits. Also, investment in government securities was not taken into consideration while calculating the limit. Now, with government securities being considered as part of the rated investments, more space has been created for insurers to invest in these instruments. With this relaxation, insurance companies can generate better yield for policyholders," says Pavan Dhamija, managing director and CEO, DLF Pramerica Life Insurance.

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