India allows greater flexibility for pension fund investments

India allows greater flexibility for pension fund investments

Wednesday, December 4, 2013 – 18:16


MUMBAI – India will allow a portion of the country’s US$80 billion in employee pensions to be invested in a wider array of debt, including short-term bills, in a bid to boost returns and further develop domestic bond markets. Fund managers handling money on behalf of the Employees’ Provident Fund Organisation (EPFO) will also be given more flexibility to invest in corporate bonds, according to new rules from the Labour Ministry marking the first overhaul of investment rules in a decade.The rules have been posted in the Labour Ministry’s web site but had not been widely publicised until analysts this week started circulating notes about the changes. The EPFO board would need to approve the changes before they become official.

The EPFO oversees the pensions of around 85 million public and private sector employees across India. It previously allowed fund managers handling its funds to invest only in government bonds and higher-rated corporate debt.

India Life Capital, a private asset manager, said the relaxed rules on investments could increase returns by 10 to 20 percentage points annually.

“The new investment regulation marks a policy break from the past by not just introducing a range of financial instruments to the fund managers of PF (provident fund) trusts, but also letting fund managers decide on strategic asset allocation and ranges,” India Life Capital said in a note.

According to the new guidelines, the government will now allow up to 5 per cent of total pension funds to be invested in money markets, including in treasury bills.

India also relaxed rules on corporate bond investments, allowing up to 55 per cent of pension funds to be invested in debt issued by companies, banks and state-run financial firms.

Previously, the government allowed EPFO money managers to invest up to 30 per cent of funds in debt of only state-run companies.

The government will also allow up to 55 per cent of the pension funds to be invested in a newly merged category comprising government and state bonds. Previously, managers had to deploy 25 per cent of EPFO funds into government bonds and 15 per cent into state bonds.

However, India has not yet allowed the EPFO funds to be invested into equities.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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