To channelise household savings into capital markets, regulator Sebi and top stock exchanges have asked the new government at the Centre to allow a portion of pension money to be invested in equities and mutual funds.
While Sebi has suggested that a part of over Rs 5.5 lakh crore pension fund corpus being managed by the Employees' Provident Fund Organisation (EPFO) can be invested into equities and mutual funds, Bombay Stock Exchange has also suggested to the Finance Ministry that pension funds should be allowed access to both primary and secondary markets.
Other market entities are also in support of pension funds being allowed to be invested into capital markets.
Sebi has said that necessary provisions can be put in place to safeguard investors and their retirement money from risks attached with equities markets, which has been a major roadblock in pension money being invested in high-risk assets.
At present, the pension funds are being invested only in debt securities and the market participants feel that a portion of these savings by a member should be allowed in other asset classes like equities and ETF products as well, to facilitate higher returns for the retired.
"The pension funds in India may be allowed access to the equity market, both primary as well as secondary, to enable them to participate in wealth creation for the companies and the investors of the pension fund," BSE said in its proposal.
"If India is to provide a viable security plan to its ageing population, to ensure that post-retiral payouts produce real returns (post accounting for inflation), it needs to be recognised that the funds would be in a position to earn much higher returns without causing significant risk to portfolio if the funds were allowed to invest in a wide array of securities, including equity, debt and ETF products," it said.
According to BSE, a well diversified portfolio would not only be a balanced portfolio in terms of the risk profile, but would also be able to generate returns far in excess of those earned with investment in debt securities only.
"By virtue of being long term investors, pension funds also are immune to cyclical risks that may otherwise sometimes hit the equity investors," the stock exchange noted.
At the same time, Securities and Exchange Board of India (Sebi) has suggested the government allow EPFO (Employee Provident Fund Organisation) to invest up to 15 per cent of their corpus in equities and mutual funds.
Besides, Sebi has recommended that members of EPFO earning over Rs 6,500 per month should be offered an option to invest part of their corpus in a MF product of their choice.
It has also been proposed by Sebi that tax benefits should be given for pension schemes launched by mutual funds.