To provide a boost to infrastructure, the PFRDA today allowed domestic pension funds to invest in infra debt funds set up as mutual funds.
The Pension Fund Regulatory and Development Authority’s decision gives IDFs much-needed access to long-term funds. IDFs could only look to banks for funds so far.
The PFRDA move will also open a new investment avenue for pension fund managers and may help National Pension System (NPS) subscribers earn higher returns.
Will boost returns
“We have now allowed pension fund managers to invest in IDFs set up as mutual funds. It could boost returns for the pension fund managers,” Yogesh Agarwal, Chairman, PFRDA, told
The announcement comes on the heels of Finance Minister P. Chidambaram’s suggestion that India should look at channelling insurance and pension funds into the newly-created IDFs. He had made a case for this as funds provided by these sectors are long-term in nature.
IDFs will be considered as debt instruments eligible for investments under the debt category of all NPS schemes.
Funds can be parked in the funds provided the IDFs are rated investment grade by at least two credit rating agencies, the PFRDA has said.
However, pension fund managers have been asked to do their own due diligence on the risks associated with the securities before investing. Also, they can invest in IDFs set up as non-banking finance companies.
The current regulatory framework allows IDFs to be floated either through the NBFCs or mutual funds.
Key role
IDFs are seen playing a key role in meeting the requirements of infrastructure funding, and as useful instruments for the private sector to raise funds.
At least 50 per cent of the estimated $1-trillion required for infrastructure development during the Twelfth Plan is expected to come from the private sector.
State-owned India Infrastructure Finance Company Ltd (IIFCL) was the first entity to roll out an IDF through the mutual fund route.
While IDFs are now looking to banks to support such initiatives, it was pointed out that banks do not have the flexibility to provide very long-term resources. For IDFs set up as mutual funds, units will be issued to both domestic and foreign investors.
The proceeds accruing to an IDF will be deployed for refinancing infrastructure projects set up under the public-private partnership mode.
The concept of IDF was mooted in Budget 2011-12 by the then Finance Minister, Pranab Mukherjee.