National Pension Scheme: 75% of funds to be invested in stocks? See what may be on cards

The National Pension Scheme (NPS) may well get an added advantage over other investment options if the government agrees to increase the equity proportion for government employees. The government is reportedly considering giving its nod to invest up to 75 per cent of the NPS funds in stock markets. Giving a clue about this development, chairman of the Pension Fund Regulatory and Development Authority, Finance Ministry, Hemant Contractor, told Bloomberg, "We are pressing the government to increase the equity proportion for government employees, and expect a favorable response very soon." 

In an interview to Bloomberg, Hemant Contractor said that the Pension Fund Regulatory and Development Authority (PFRDA), as well as India's insurance and securities regulators are also pursuing the implementation of a news stewardship code, adding "The new code will help improve the professionalism of business management, with challenges ranging from the misuse of corporate funds to boards taking insufficient action when things go wrong". 

Notably, government employees contribute about 87 per cent of the Rs 2.3 lakh crore ($35 billion) overseen by the NPS. If a big portion of this heads towards the equity markets, the knock-on effect on the same will be massive and also provide a big boost to sentiment as it will be considered as being endorsed by a fund that is, by default, expected to play very safe with the retirement money of lakhs and lakhs of employees.

Another rival for the attention of the fund's money is the World Gold Council, which is reportedly pitching gold as a permissible asset class in NPS. A proven source of long-term returns, gold has played a role of a diversifier that can mitigate losses in times of market stress, besides being a liquid asset with no credit risk that has outperformed fiat currencies, and a means to enhance overall portfolio performance.
 
Pension regulator PFRDA, however, has not permitted gold investments, rather, it has allowed the same corporate bond, government debt and others like alternative investment funds (AIFs), and real estate investment trusts (REITs).
 
Somasundaram PR, managing director, India, World Gold Council, told DNA Money, "Gold should be permitted as a mainstream asset class in National Pension Scheme (NPS) regulated by PFRDA as it has potential to enhance returns of a portfolio." 
 

Watch this Zee Business video

"Our research shows that expansion of wealth is one of the important drivers of gold demand over the long run. Gold's long-term returns have been comparable to stocks and higher than bonds and commodities," he added.

.