India lets $177 billion of pensions access far more assets

Under the revised guidelines issued on Wednesday, National Pension System funds may buy into more stocks and debt securities, as well as some gold and silver funds and more real estate vehicles

India’s pension regulator has broadened the scope of permitted investments, allowing deeper participation in equities, bonds and alternative assets in a sweeping update.

Under the revised guidelines issued on Wednesday, National Pension System funds may buy into more stocks and debt securities, as well as some gold and silver funds and more real estate vehicles. The move is expected to improve diversification and liquidity across portfolios as assets under management surge.

It’s also part of a broader move toward more risk tolerance by India’s pension authorities. Embracing riskier assets may boost returns, while also exposing investors to more market volatility — the classic judgment call for such programs globally that must serve investors with varied levels of sophistication.

Indians are embracing the NPS, which was introduced over two decades ago and oversees about $177 billion, as salaried individuals seek tax-efficient retirement savings. That’s in keeping with the increased uptake in financial products in the country amid a stock market boom that is set for 10th straight year of gains.

Investors may now buy into stocks on the Nifty 250 and BSE 250 indexes, expanding the universe from just the top 200 listed companies. The Pension Fund Regulatory and Development Authority will partly permit investment in select debt securities where “rating from only one credit rating agency will be sufficient,” it said.

The regulator has also removed the requirement for sponsor ratings for real estate investment trusts and infrastructure investment trusts. Additionally, NPS vehicles can now invest in gold and silver exchange-traded funds, adding commodities exposure for the first time.

The move to open up billions in pension fund money to the commodity market comes as the Securities and Exchange Board of India is seeking to push more institutions to participate in the asset class. The market regulator is also in discussions with the Reserve Bank of India to allow banks to trade commodity derivatives.

The updates, which take effect immediately, reflect the regulator’s push to modernize investment architecture and expand avenues for long-term returns while maintaining prudential safeguards.