The minimum capital required for setting up a pension fund is likely to be fixed at Rs 25 crore (Rs 250 million), one fourth of what is prescribed for the insurers.

This minimum capital requirement has been mooted by India Invest Economic Foundation, advisor to the government on pension, which recently submitted broad contours for the operational framework and selection of pension fund managers in the light of the recent opening up of the sector.

IIEF suggested that initially there should be six pension fund houses with one in the public sector.

It also said domestic mutual funds with assets of over Rs 4,500 crore (Rs 45 billion) and global asset management companies, pension funds or insurers with assets of over Rs 100,000 crore (Rs 1,000 billion) and 20 years experience could be allowed to sponsor a new pension fund management company.

Domestic or foreign banks or financial institutions registered with the Reserve Bank of India and having a minimum investment portfolio of Rs 4,500 crore could also set up pension fund companies.

However, IIEF has suggested stringent conditions for the proposed PFMs, saying if assets of any PFM fall below 5 per cent of the total assets under management of the system, then the licence could be terminated and a new entity will have to be appointed through the bidding process.

In the case of termination of licence or disqualification, the PFM should not be allowed to re-enter for another three years, it suggested.

It recommended that PFMs, which would have to pay an annual licence renewal fee of Rs 2 crore (Rs 20 milion) to Pension Fund Regulatory and Development Authority, should be allowed to merge or buy out other PFMs in the long-term.

IIEF also suggested certain pre-conditions like the sponsors of a PFM should at no time be allowed to hold over 10 per cent equity stake in any other PFM. Also, the sponsor should not hold over 10 per cent stake in the Central Record Keeping Agency, the nerve centre of the system.

In view of audit irregularities that marred the global markets, it also recommended that no audit firm should hold any equity stake in a PFM.

On an international firm wanting to sponsor a PFM, it said though it would be allowed to participate in the bidding even without having an office in India, it would have to set up an office in the country upon granting of the licence by PFRDA.

It could be either through a 100 per cent subsidiary of the international sponsor or in collaboration with domestic person(s) or firm(s).

It said PFRDA would initiate the selection of PFM by issuing an expression of interest, which would specify the eligibility criteria for firms wishing to sponsor/set up a pension fund management company.

Each PFM would offer three standard schemes -- safe, balanced and growth -- depending on the proportion of investments in equity and government paper and corporate bonds.

In order to reach out to the targeted 30 crore (300 million) workers in the country, IIEF said it was essential to harness a variety of non-proprietary distribution channels into pension system.