Pension funds & Equity


By

Shweta D. Vakil
B-Pharm, MBA
Lecturer
YMT College of Management
Navi Mumbai-Kharghar
 


As the word says, is a scheme, plan or fund that provides income post retirement. The money is contributed by an employee as well as an employer in unanimity.  This helps the employee after retirement when his regular salary income terminates for meeting daily expenses. Many of the organizations operate their pension funds in house but also there are many of them that outsource the same to some financial intermediary. Also there are types of pensions like, employment based pension as explained above, disability based pension in which the pension is received after incurring disability and social and state pension that is given through a fund contributed by countries.

PFRDA (Pension funds regulatory  and development authority) is the regulatory body of pension funds in India. National Pension System (NPS) is an initiative of Pension Fund Regulatory and Development Authority (PFRDA), the apex body established by Government of India to regulate and develop the pension sector in India. NPS has been extended to all citizens of India with effect from 1st May 2009.

The Global pension asset study 2011 shows the total amount of pension assets in major 13 markets  in 2010 was  26,496 bn $ that cover 76% of the GDP of the economies of these countries. The 13 counties that have been considered are Australia, Brazil, Canada, France, Germany, Hong Kong, Ireland, Japan, Netherland, South Africa,  Switzerland, UK and  US. The rise is about 12% over the amount in 2009. It has to be noted that US remains the largest market in terms of pension assets followed by Japan and UK. The pension fund money in India is said to be 40 bn $. It covers 10% of the population.

Since June 2 , SEBI has approved for investment of  domestic pension funds into equity. Till date India was the only country that did not allow so. Experts believe that by doing so they can counterbalance pension funds with FII's . This shows how big must be the contribution of pension funds.  15% of pension money is invested into market, it will raise investible surplus by 1.5%.

Also taking the investment for post retirement benefits into consideration, equities would help in getting higher returns as always statistics have shown that equities consistently outperform bonds, gold, real estate or any other asset class.  It has been observed that 30% of the money flowing into equity in US markets is pension fund money. In Chile, $41bn of assets were created in 20 years; in Argentina, $8bn was created in five years; and in Mexico, $10bn was created in three years. India has close to $40bn of pension money and the pension assets are expected to be around $100bn by 2015.

Bibiliography

Global pension asset study -2011 PDF

www. Investopedia.com

wwww.pfrda.com

www.economictimes.com
 


Shweta D. Vakil
B-Pharm, MBA
Lecturer
YMT College of Management
Navi Mumbai-Kharghar
 

Source: E-mail June 7, 2011

          

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