Pension Fund Regulatory and Development Authority (PFRDA) will soon allow pension fund managers (PFMs) to invest in initial public offerings (IPOs), follow on public offers (FPOs) and offer for sale (OFS).
This would mean that PFMs could use their investment corpus to invest into upcoming IPOs including the Rs 16,000 crore initial public offering of Paytm.
Speaking to Moneycontrol, Supratim Bandyopadhyay, Chairman, PFRDA said these will allow PFMs to have a wider range of investment options.
"This will broaden the PFMs investment universe and help customers in a big way in form of returns," he added. As of July 10, equity returns under NPS stood at 11.31 percent which is the highest compared to all other instruments like corporate bonds and government securities.
Elaborating further, Bandyopadhyay said that their guidelines will borrow from fellow regulators like IRDAI (Insurance Regulatory and Development Authority of India) to stipulate the minimum IPO size threshold above which a PFM can invest.
"We will not allow PFMs to invest in small IPOs. For example, we may say that the IPO size should at least be Rs 200 crore. Detailed guidelines will be released in the next few days," he added.
IRDAI allows IPO investments only if the issue size is Rs 200 crore and above. The performance track record including earnings and dividend have to be checked for the past seven years (in case of life insurers) and three years (in case of general insurance).
Total assets under management (AUM) for various schemes under PFRDA stood at Rs 6.2 lakh crore as of July 10.
Currently, LIC Pension Fund, SBI Pension Funds and UTI Retirement Solutions are the pension fund managers for the public sector whereas for the private sector, apart from these three, there are four others: HDFC Pension Management, ICICI Prudential Pension Fund Management, Kotak Mahindra Pension Fund and Aditya Birla Sun Life Pension Management.
Axis MF has also been selected to become a PFM but is awaiting an approval from the Reserve Bank of India since its parent Axis Bank is a banking entity.
D-Remit picks up pace
Direct Remittance (D-Remit) is a facility that allows National Pension System (NPS) customers to deposit voluntary contributions by creating a virtual identity. It was started on October 1, 2020.
Bandyopadhyay said that in nine months, collections under D-Remit stand at Rs 425 crore.
"It is catching up and a lot of people are getting themselves registered. By the end of the year, we could see about Rs 800 crore coming in under D-Remit," he added.
New investments, licences
The pension sector under PFRDA will now be allowed foreign direct investment (FDI) of up to 74 percent from 49 percent earlier. While Insurance (Amendment) Act 2021 allowed insurers to have up to 74 percent FDI, there was clarity awaited for PFMs.
Bandyopadhyay said a few PFMs were crossing 49 percent FDI limit.
"This is because FDI includes direct and indirect holdings and they crossed 49 percent because of change in FDI at the sponsor level. The hike in FDI will now ensure that these companies will be within their norms," he added.
PFRDA is also planning to offer on-tap licenses to new PFMs. This will however be open to only large, legacy companies with a good track record in fund management.
Bandyopadhyay said that interested parties have time till the end of July to apply for these licenses. However, he said that entry has been kept stringent.
"I don't see new-age, fintech companies to become PFMs. We want those managing assets of Rs 50,000 crore and above. So, strong and established players would be invited to be part of this," he added.
These new players, he said, will help expand the distribution of products among the private sector and retail customers.
"The corporate sector is seeing latent demand. In Q1FY22, we got 1,60,000 new customers in private and retail sector compared to 1,00,000 last year," he said.
Meanwhile, life insurers are also keen to distribute NPS in their branches. Bandyopadhyay said that PFRDA is open to this idea, since this will help widen their product reach.
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