India’s pension managers want to bend bond rules to chase yield on your retirement savings

Indian pension managers have asked the industry regulator to ease rules that mandate the tenor of company bonds they can buy, according to people familiar with the matter.

The retirement funds recently asked the Pension Fund Regulatory and Development Authority to relax a cap on purchases of corporate bonds that mature in less than three years, the people said, asking not to be named discussing private matters. They also requested permission to buy company debt rated by only one credit assessor, the people said.

The requests were made by the Association of NPS Intermediaries, the industry body, at a recent meeting. They underscore the growing need for flexibility as managers aim to maximize returns on a growing pool of household savings. These assets tripled over the last five years, fueled by India’s economic growth and rising investor participation in the financial system.

Currently, investment in corporate bonds maturing in less than three years is capped at 10%, with most securities needing ratings from at least two credit agencies, according to a March 2025 circular by the pension regulator.

Since the pandemic, the assets with the National Pension System have more than tripled to 14.4 trillion rupees ($168 billion), according to data on the platform’s website. That has led to greater purchases of government bonds, prompting the central bank to introduce a category tracking the sector’s ownership of sovereign debt in 2023.

The share of corporate bonds, however, has waned, dropping to 23.7% in the year ended March 2024, from 27.2% in the previous year, the data show.

A spokesperson for the Pension Fund Regulatory and Development Authority didn’t reply to a request for comment.

The request to relax the 10% maturity norm would provide another investment opportunity for the growing industry. While bonds issued by financial sector companies meet dual-rating requirements, manufacturing firms often opt for single ratings to save costs, limiting pension funds’ ability to invest in them.

To be sure, investments in papers rated by just one agency could potentially dilute the credit quality of retirement fund portfolios. Meanwhile, increased investment in shorter-maturity bonds could pose challenges for retirement funds in deploying the proceeds from those securities at a desirable rate of interest.

Over the past few months, long-term investors such as insurance funds have asked Indian regulators for more access to the country’s financial markets. Some of these requests, such as permission to expand hedging tools and the introduction of new types of debt securities, have been granted, reflecting the growing heft of these players.