Increase retirement funds' equity exposure for greater good: Assocham-Crisil study

A joint study of industry body Associated Chambers of Commerce and Industry of India (Assocham) and Crisil, titled 'For greater good', has said that there is a need to increase the asset allocation to equity allowed in retirement funds like Employees’ Provident Fund (EPF) from the current level of five per cent, as it will help in realising the country's huge demographic advantage.

The study stated that at five per cent, overall exposure to equity could barely reach five per cent in 20 years, and even if allocation was increased to 15 per cent, it may take three more years to cross the five per cent overall mark. It pointed that the global exposure level is much higher in OECD (Organisation for Economic Co-operation and Development) countries, like Canada and the United States, for instance, the average is near 30 per cent, it is imperative, therefore, to increase this exposure level.

It said the OECD countries, despite having an ageing economy, continue to remain strongly invested in long-term asset classes like equity and even the non-OECD countries are putting their demographic advantage to better use by investing in equities. In India, however, pension assets are predominantly invested in debt. This is despite the demographic advantage the country has and is expected to enjoy over a long term. The study further highlighted that as per a global analysis of investments, even the non-OECD countries are putting their demographic advantage to better use by investing in equities.