FDI in pension? Variable cap likely

The finance ministry is exploring the option of a variable foreign direct investment cap for pension fund managers, with entities investing above $50 million being allowed 100 per cent FDI.

The proposal is similar to the investment limit for the mutual fund industry, where 26 per cent FDI is permitted in asset management companies that have investments up to $10 million, and 50 per cent FDI is allowed for companies with investments between $10 million and $50 million.

Ministry officials said the proposal was still on the drawing board and a final decision would be taken by the Pension Fund Regulatory & Development Authority, which would be constituted shortly.

In the mutual fund business, foreign players have entered India with a domestic partner with those like Franklin Templeton, Standard Chartered and Alliance holding a 75 per cent stake in the asset management companies.

Fidelity is expected to be the first player with 100 per cent equity in the AMC. "There is a local flavour in all AMCs and we expect a similar trend in the pension business," a finance ministry official said.

Funds like Principal of the US have already tied up with local players like Punjab National Bank, Vijaya Bank and Berger Paints to enter the pension business.

The finance ministry has already asked the Insurance Regulatory and Development Authority to frame draft rules for the pension business.

While a road map for the entry of fund managers is yet to be charted, the government has issued guidelines on investments. However, it has been silent on the level of foreign investment that will be permitted.

As per the investment norms issued by the finance ministry in January, private funds would be allowed to invest up to 5 per cent of the portfolio in equities. The rules are applicable from April 1.

Officials in the ministry said once the regulator was in place, the guidelines for their entry would be announced. According to the plan, there would be six fund managers in the beginning, with one from the public sector.

The new pension scheme was put in place for new government recruits from January 2004. The finance ministry is also undertaking a survey to assess the effect of the new scheme and to gauge the awareness level of the new scheme among the recruits.