LIC, SBI in race to manage pension funds

Public sector entities Life Insurance Corporation, UTI AMC, State Bank of India and Punjab National Bank are among the front-runners to become pension fund managers under the new pension system.

The direct and indirect foreign investment in pension funds will not exceed 26 per cent. The Pension Fund Regulatory and Development Authority (PFRDA) recently invited expressions of interest for managers. The last date to apply is May 25, 2007.

"LIC, SBI, PNB and UTI AMC are keen to become fund managers under the new pension scheme," sources said.

The selected sponsors will have to incorporate the pension fund as a separate public sector company in which direct and indirect foreign investment will not exceed 26 per cent.

PNB is likely to have US-based Principal Financial Group as the foreign partner. "We are interested to be a pension fund manager," a PNB official said.

According to official sources, there will be 2-3 fund managers from the public sector as the scheme at the moment is for central and state government employees. Private fund managers are likely to be allowed after the scheme is made available to other citizens of India in due course.

According to the criteria, a sponsor to be eligible for fund manager must have at least five years of experience of fund management and average assets under management of sponsors must not be less than Rs 10,000 crore.

The PFRDA has also prescribed a minimum positive networth of Rs 10 crore for the new pension funds to be incorporated.

Last month, the regulator appointed the National Securities Depository Ltd as the central record-keeping agency for issuing a unique permanent retirement account number to each subscriber and maintaining a database of all pension accounts.

About 300,000 central government and state government employees are estimated to have joined the scheme since it came into being from January 1, 2004 leading to accumulation of around Rs 1,700 crore pension fund corpus.

The selection of the fund managers is likely to be completed by June and the funds are likely to be invested according to an interim investment pattern that may allow investment of 5 per cent in equity and 10 per cent in equity-linked mutual funds.

The remaining are to be invested in government securities, corporate bonds and other money market instruments.

This investment pattern is expected to generate a significantly higher return than 8 per cent return per annum that the corpus generates at the moment.