New Delhi, Dec 11: The Indian Venture and Alternate Capital Association (IVCA) welcomes the two Master Circulars issued by the Pension Fund Regulatory and Development Authority (PFRDA) on 10 December 2025, which consolidate and clarify the investment framework for pension funds across government and private-sector National Pension System (NPS) schemes.

For IVCA, whose core mission is to help India build deep, domestic pools of long-term capital, pension funds remain the cornerstone of stable and patient investing worldwide. India’s alternate investment ecosystem comprising infrastructure funds, venture capital, SME-focused strategies and private credit—relies on such institutions to anchor growth with resilience and continuity. PFRDA’s updated guidelines strengthen this foundation by reaffirming the role of regulated AIFs within the pension investment universe and by providing a clearer, more predictable rulebook for market participants.

As of FY25, NPS manages approximately INR 14.4 lakh crore, of which INR 2.91 lakh crore belongs to the non-government sector, including corporates. This pool represents the primary base from which allocations to AIFs may be made, both under existing rules and under the forthcoming NPS fund-of-funds (FoF) platform announced last week. While no separate FoF corpus has been constituted yet, the planned framework is expected to channel existing pension assets into eligible AIFs through a centralised, transparent selection mechanism.

Gopal Jain, Managing Partner, Gaja Capital & Co-Chair, Regulatory Affairs Committee, IVCA said,

“The recent developments from PFRDA reflect a clear and steady vision for how India’s pension architecture can support long-term value creation. The announcement of an NPS fund-of-funds marked a bold step towards giving retirement capital a structured, well-governed pathway into private markets. The updated Master Circulars build on that momentum by bringing clarity and consistency to the framework through which pension funds operate.

He further added, “Together, these measures strengthen the foundations for domestic capital mobilisation. They preserve the prudence expected of pension money while enabling greater participation in the sectors that power India’s growth—entrepreneurship, infrastructure, innovation and enterprise formation. What matters most is the confidence that comes from predictable rules and constructive dialogue. We deeply appreciate Chairman Ramann and the PFRDA leadership for their continued engagement with the industry. These steps, taken thoughtfully and in sequence, bring India closer to creating a truly homegrown engine of long-horizon capital—one that serves markets, supports innovation, and delivers durable value to millions of pension subscribers.”

Under current regulations, pension funds may invest up to 5% of their total corpus in alternative assets—specifically Category I and II AIFs—subject to strict conditions on ratings, diversification, governance and exposure. AIFs must maintain a minimum ₹INR 100 crore corpus, and investments in any single fund cannot exceed 10% of that AIF’s size. The guidelines also uphold important safeguards: adherence to domestic investment rules under Section 25, minimum AA ratings for eligible instruments, and risk-aligned filters to ensure pension capital is deployed responsibly.

Rajat Tandon, President, IVCA, said,

“Venture and alternate capital is deeply appreciative of Chairman Shri Ramann’s apex leadership in empowering PFRDA to invest in Alternative Investment Funds (AIFs) supporting the development of startups and entrepreneurs.

Over the past several years, IVCA has actively engaged with the Ministry of Finance, Ministry of Commerce and Industry, Ministry of Labour and Employment, PFRDA, EPFO and other stakeholders to build support for this direction, and we are grateful for their continued partnership. IVCA’s Domestic Institutional Investors (DII) initiative and report highlight the transformative impact a 5% pension allocation can have on the Indian alternative asset ecosystem.

PFRDA’s circulars are strategic: they reaffirm regulatory confidence in the asset class, strengthen governance, and send an important message to global and domestic investors. Banks, insurers, provident funds, limited partners, family offices and HNIs will surely step up their investments. This is a milestone in India’s capital formation story.”

There are instances, within parts of the private-sector NPS ecosystem, where a tighter 2% operational ceiling has been referenced for AIF investment; the updated Master Circulars do not alter these limits but provide needed clarity on categorisation, processes and compliance thresholds.

Looking ahead, the FoF framework being developed by PFRDA is expected to standardise access to AIFs without modifying the 5% cap in the initial phase. Its focus will be on governance, transparency and alignment with pension-appropriate strategies—particularly long-tenure infrastructure, SME, venture and innovation-linked funds. Once operational, even a steady-state allocation within the existing limit could translate into tens of thousands of crores of domestic pension capital flowing into India’s regulated AIF ecosystem over the coming years.

For India’s capital markets, this marks continued progress toward building a strong, homegrown engine of long-term capital—one that supports national priorities, widens participation and strengthens the country’s financial architecture.