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Question on Pension Funds.....answered !!!


On 1/7/12, Mukta Mantri <mantrimukta@yahoo.in> wrote:
> Just wanted to know if PENSION FUNDS are allowed to invest in stock markets?
> if so, what %? Bcoz, being the old age benefit scheme, it should not be
> investing in fluctuating markets as this would lead to uncertain returns and
> may lead to capital erosion.

Dear Mrs. Mantri Madam,

First and foremost I must congratulate you for you are asking the FIRST question in ET Univ. and a very good one at that.

Pension funds hold a major chunk of Institutional money....which is very important for the capital mkts. Now simply put maximizing returns with adequate safety is always the priority  for the Govt. Hence the funds do enter the capital mkts in parts. According to the New Pension Scheme 2004 guidelines contributor can choose from the investment options....Equity or Govt. Bonds or other forms of scheduled investments but if he has not chosen any, then the "Auto Option" is activated and depending on the age of the contributor his money is invested in all asset classes in a predefined percentage.....the younger the person the riskier the asset class.

Your argument regarding public money and capital erosion is fair but normally these contributions are for a very LONG PERIODS (15-20-30 yrs)and historically the capital mkts have given 15 - 20 % returns on investment in LONG Term, so cyclical fluctuations are set-off.

I hope I have answered your question. It was a pleasure!!!

Also I shall appreciate if you could ask more such lovely questions on the "ET UNIV. BLOG" it will be very useful for students' knowledge and discussions.

Regards,
Ravi Sahu
Asst. Prof.
HVPM MBA - Amt.

Comments

  1. Mayur S. JoshiJanuary 7, 2012 at 7:51 PM

    Mantri Madam.. Very good question & Ravi sir excellent explanation.. Thanks to both of you

    ReplyDelete
  2. Radhika KalantriJanuary 8, 2012 at 10:58 PM

    Very Good Explanation

    ReplyDelete

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