The one-year return of the NPS, even for government employees, is about 150 to 200 basis points higher than that of the EPF. The system now gives these subscribers the possibility of investing up to 50% in shares. To achieve higher returns, the EPF should invest in a more diversified asset class rather than just bonds covered in equities. It should diversify into venture capital, private equity and real estate, to establish rights over larger 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 retirement savings pool is stifling innovation and job creation while diminishing returns for itself.
The EPF can also create a special situations fund to invest in troubled assets undergoing recovery. The most important point is to mitigate risk by investing in various asset classes. It also requires hiring fund management talent and aligning their compensation with performance. Canadian public pension funds are a good model.