New Delhi, March 11 -- The National Pension System (NPS) will set aside 1% of its Rs 1.7 lakh crore corpus for investments in alternative investment funds (AIFs), the top official of the pension funds regulator said.
S Ramann, chairperson of the Pension Fund Regulatory and Development Authority (PFRDA), announced this at the IVCA Conclave 2026 organized by the Indian Venture and Alternate Capital Association (IVCA).
The move would channel around Rs 17,000 crore ($1.8 billion) from the National Pension System Trust, which holds NPS assets, into the fund industry, which has struggled to raise money from pension fund managers. A December 2025 IVCA report said none of the 10 portfolio managers for NPS had invested in AIFs.
According to a statement issued by IVCA, Ramann said, "Deeper domestic institutional participation is critical for market stability and for broadening access to long-term savings instruments."
He also stressed the importance of strong governance standards, risk management frameworks, and regulatory policies aligned with global best practices.
"It comes down to the matter of disclosure, trust, and the ability of the ecosystem to demonstrate transparency and efficiency. Each fund manager and GP has the responsibility to meet the governance standards that institutional capital expects," he said.
The corpus set aside for AIFs is still only a fraction of the capital that could potentially be unlocked from pension funds. Pension funds are allowed to invest up to 5% of their corpus in asset-backed, trust-structured and miscellaneous investments, which include Category I and II AIFs. At the current corpus size, this could translate into a pool of about Rs 85,000 crore (around $9.2 billion).
There has been a concerted push in recent months to encourage pension funds to invest in AIFs. The NPS Trust even set up a dedicated cell for this purpose in February.
At the conclave, IVCA also welcomed the government's recent decision to ease rules around foreign direct investment (FDI) from land-bordering countries (LBC).
To prevent opportunistic takeovers during the pandemic, investments where the beneficial owner was from an LBC required government approval. However, this created complications for global fund structures that included non-controlling or minority investors from such countries.
The revised framework, among other changes, is expected to make it easier for such global funds to invest in India.
Ashley Menezes, partner and COO at ChrysCapital and chairperson of IVCA, said, "By providing clarity around beneficial ownership and enabling automatic route investments where there is a nominal holding, the policy addresses a long-standing concern faced by investors. This will help restore momentum to capital flows into the country."
In a session on policymaking to make the fund industry more inclusive, Securities and Exchange Board of India (SEBI) chief general manager Aparna Thyagarajan highlighted how tranching could be used to raise funding for sustainable enterprises.
"SEBI has permitted tranching in a limited manner, and government and large multilateral institutions can come in as junior investors in blended finance structures. Blended structures could be explored as an alternative to raise capital for sustainable enterprises, where the government can take the lead and private markets can follow public capital," she said.
Published by HT Digital Content Services with permission from VC Circle.