The one-year return on NPS even for government employees is about 150-200 basis points above the EPF’s. The scheme now gives an option to these subscribers to invest up to 50% in equities. To garner higher returns, the EPF must invest in a more diverse class of assets instead of just bonds glazed with equity. It should diversify into venture capital, private equity and real estate, to establish claims on broader portions of the economy’s productive capacity and vary the degree of risk assumed. India does not have enough venture capital. By refusing to provide venture capital, India’s largest pool of retirement savings is stifling innovation and job creation while lowering the return for itself.
The EPF can also set up a special situations fund to invest in distressed assets being turned around. The larger point is to mitigate risk by investing across varied asset classes. This also calls for hiring fund management talent and aligning their compensation with performance. Canadian public pension funds are a good model.