Citing global empirical studies, Minister of State for Finance Jayant Sinha said that it has been established that systematic investment plans and average costing approach generate the best returns for long-term investors.
Favouring increase in Employees Provident Fund Organisation (EPFO) investment in the equity market to 15%, Union Minister Jayant Sinha on Thursday said the benefit of average costing must be available to the people saving for their retirement.
Citing global empirical studies, Minister of State for Finance Jayant Sinha said that it has been established that systematic investment plans and average costing approach generate the best returns for long-term investors.
"As you know there is an ability for EPFO to go up to 15% in the equity markets (investment)... the benefit of average costing should be available to people saving for retirement because the equity markets will go through ups and downs," he said.
Sinha was talking to the reporters on the sidelines of Pension Fund Regulatory and Development Authority (PFRDA)'s Pension Conclave.
"There will be bull markets and there will be bear markets but if you follow an average costing approach, you will be building your own position in the market at appropriately low cost when the market is down," Sinha said.
The minister also pitched for access to full range of pension products besides having exposure to global products so that people saving for retirement can diversify portfolio.
"We also need to do make sure that our investors, who are saving for retirement have access to a full range of pension products... such as venture capital and private equity which have generated very strong real returns around the world," he said.
Lauding the National Pension System (NPS) scheme of the PFRDA, he said it is a wonderful product having an established, low-cost and cost-effective platform for pension savings.
"Those should be available for people saving for their retirement. We have to make sure that people have access to real estate which has also been a very good asset class. Global investment products should also be available for our savers so that they can further diversify and improve the risk ratio on their portfolio", Sinha said.
Also, there is a need for India to recognise the importance of a set of diversified uncorrelated asset classes that helps push out the risk of all frontiers related with such kind of products.
"All of those empirical evidence is also corroborated by the Indian equity markets, which have been volatile. But in the long-run, they have demonstrated quite impressively, it is almost better than any other asset," Sinha said.
In August 2015, the EPFO had entered the equity market through exchange-traded fund route with an initial corpus of Rs 5,000 crore, which could go up to nearly Rs 15,000 crore.
The investment was made through SBI Mutual Fund's two index-linked ETFs -- one to the BSE's Sensex and the other to NSE's Nifty.
The EPFO manages a corpus of Rs 8.5 lakh crore and is expected receive incremental deposits of Rs 1.2 lakh crore during this fiscal.
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