INDIA: Retirement Funds May Get To Invest In Corporate Bonds

MUMBAI (The Economic Times), October 27, 2007: India's ministry of finance has proposed to allow retirement funds to invest into corporate bonds. The ministry has clarified in a recent notification, stating that trustees may invest in corporate bonds, which have a rating from at least two agencies and in equity-linked mutual funds (MFs). Earlier last month, the ministry had excluded private sector debt instruments from the investment kitty of superannuation, retirement and gratuity funds. The revised draft guidelines for investment patterns of retirement funds had proposed to do away with the the sub-limit of 10% on investments in corporate bonds. Had these guidelines been implemented, corporates which largely depend upon retirement funds as subscribers to their bond programmes, would have come under great difficulty. In fact, even banks, which take positions in corporate bonds, later sell these bonds to retirement funds, explained a senior official with a broking firm. Sources stated the ministry officials had earlier missed out on including corporate debt as an investment option for such funds, but have now clarified the same. This could also have come as an attempt to revive the shallow the corporate bond market. The draft guidelines issued earlier, proposed an overall limit of 35% on investments made by such PF trusts into government bonds, state development securities, gilt mutual funds and bonds issued by agencies such as the Asian Development Bank (ADB). The revised guidelines, if enforced, may only apply to the new inflows of PF trusts and not the existing corpuses. The draft guidelines also propose to make the entire investment procedure more linked to market conditions. The marked-to-market clause has also been added. This is to ensure that retirement funds keep an eye on how their investments are faring, from time to time. Most retirement funds hold their bonds till maturity and do not evaluate them according to market valuation. By Preeti R. Iyer Copyright © 2007 Times Internet Limited.