Pension funds should flow into mkts: Sebi chief

MUMBAI: Markets regulator U K Sinha has called for an increase in equity investment by retirement funds to act as a counterbalance to volatile investments by foreign institutional investors. The pension fund regulator, however, feels that given the current environment, existing limits are adequate.


Speaking at the SKOCH summit here on Thursday, Sinha said that lack of pension money flowing into the equity markets is an issue. "India is perhaps the only significant country where there is a prohibition that worker's money cannot be invested in the market. I have not seen any other market where worker's money is prohibited by regulation." Sinha said that allowing pension funds into equity would provide a major policy benefit as it would act as a counterbalance to equity flows.


In India, retirement funds come under the purview of multiple regulators. While Sebi regulates investments by mutual funds, the Insurance Regulatory and Development Authority is responsible for pension schemes floated by life insurance companies. More recently, the Pension Fund Regulatory Authority has emerged as the regulator for defined contribution pension scheme for government employees and a voluntary pension scheme. The biggest chunk of retirement funds comes under the Employee Provident Fund Organisation as it regulates the statutory retirement savings for salaries of people which includes a contribution from the employer.


Sebi and IRDA allow providers to invest most of their funds in equity. But in case of IRDA, sales of unit-linked pension schemes (Ulips) have dried up after the regulator insisted that companies provide a guaranteed return. The trustees of the EPFO have been the most strident in their opposition to retirement funds being deployed in equity markets.


Speaking on the sidelines of the same summit, Yogesh Agarwal, chairman, PFRDA, said the pension regulator allowed non-government schemes to invest up to 50% in equities. He said that given the current environment this was a good number. Incidentally, of the PFRDA's funds, the average return under equity funds has been 15.26%, while the average of returns under debt and gilt funds have been 9.33% and 6.73%, respectively.


Sinha said that the other advantage of channelizing pension funds into the capital markets was that it was long-term money. "If a worker is against investing in the capital market, it is perfectly fine. But why should regulations prohibit it," he said.


Besides, Sebi is in the process of significantly upgrading its market surveillance system which it claims will be the best in the world in the next six months. "Compared with a year ago, we are getting much more alerts. We are telling people... you cannot get away," said Sinha. According to the market regulator, there have been instances in the past that people got away because the system could not catch up but things have changed now.

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