The government's decision to allow Employees' Provident Fund Organisation (EPFO) invest 5 percent of its Rs 1 trillion investible fund in exchange traded equity funds has made mutual fund houses bullish about launching retirement equity funds, industry officials said.
"News that the EPFO will invest in exchange traded equity funds will send out a strong message to our investors," Reliance Capital Asset Management Company President and Chief Executive Sundeep Sikka told PTI on the sidelines of an event held by the Wealth Forum here today.
The second largest institutional investor EPFO managing around Rs 6.4 trillion will begin investing in exchange traded equity funds from this month.
At present, retirement fund assets under management are merely Rs 1,000 crore in the country.
However, mutual fund houses believe that this space has potential to touch Rs 15 trillion due to low penetration, which is currently at around 10 percent.
In fact, within three months of its launch, a retirement fund being run by Reliance Capital AMC has already got 50,000 investors and the company plans to take it to five lakh investors in three years, Sikka said.
SBI Mutual Fund Managing Director and Chief Executive Dinesh Khara also echoed similar views said, "The EPFO's plan to invest in exchange traded equity funds will help educate our investors to invest in retirement equity funds."
Equity funds have been giving a 18 percent return for the past 20 years and hence asset management companies are sure of giving high returns to investors of retirement equity funds, he said.
"Right now, the actual investment made in the Reliance Retirement Fund is around Rs 230 crore, including Rs 180 crore in equities and the rest Rs 50 crore in debt.
Still we are hopeful of taking it to Rs 13,000 crore in five years, having already got a commitment of Rs 1,300 crore," Reliance Capital's Deputy CEO Himanshu Vyapak said.
While Reliance Capital AMC was the first to launch a retirement fund which invests in equities, there are two other players namely Franklin Templeton and UTI Mutual Fund, which invest in debt at present.
Other fund houses aspiring to launch retirement funds include SBI Mutual Fund, DSP Blackrock and HDFC MF. SBI MF, which is awaiting Securities and Exchange Board of India (SEBI) approval for its proposed retirement fund, is also likely to launch a retirement equity fund.
"We've already applied to SEBI for permission to launch a retirement fund," SBI MF Managing Director and CEO Dinesh Khara said without divulging any more details.
DSP Blackrock's Executive Vice-President Ajit Menon also confirmed that it is awaiting SEBI's nod to launch a retirement fund.
He also expressed hopes that more people would park their retirement funds with private mutual fund players since funds being managed under the New Pension System comes with a five-year lock-in period.