INDIA - The Insurance Regulatory and Development Authority (IRDA) of India is not in favour of fixing a cap on the number of players in the pension fund sector. And investment of pension funds in equity markets, as it exists today in India, is not advisable, according to N Rangachary, chairman of IRDA.
IRDA is of the view that there should not be any ceiling on the number of pension fund providers and the schemes that they can offer, said Rangachary. However, referring to the IRDA report on pension funds, he said there should be caps on various costs incurred by pension fund providers. IRDA has recently submitted its report on ‘pension reforms in the unorganised sector’ to the Government.
Companies with a good track record, financial soundness and a clean public face would naturally get preference to enter the pension funds sector.
He said pension fund management consists of four integral parts - collection, administration, investment and payout stages - which should be exclusively reserved for insurance companies. Prospective pension fund managers should have good track record, knowhow and be financially sound, among other things.
Referring to the investment avenues for pension funds, he said though equity could be an attractive investment option in the long term, the present situation in the Indian stock markets may prevent people to go into equity in larger measure. Therefore, we have suggested investment in index funds, Rangachary said.
I would rather prefer an index-based fund for pension funds, Rangachary said.
When subscribers to pension funds reach maturity, the total amount of pension paid to them should be tax-free although there was some justification in the statement of the income tax department that since the tax exemption at the contribution stage was given at maturity some tax should be deducted.
Rangachary felt that such pension funds would be ready for implementation by the end of 2002 but if the government insisted on legislation, it might take some time longer.
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