India’s National Pension System (NSP) plans to lend out securities in a bid to boost returns.

The $14bn retirement fund, set up for Indian government employees in 2004, invests in equities, corporate bonds and government securities.

The scheme has posted attractive returns, topping a 10% average score since inception and was extended to the private sector in 2009.

However, the fund is likely to remodeled significantly over the next few years due to a gradual transition from what is known as a directed investment regime to a prudent investor regime (PIR).

The prime objective of a prudent investor regime is consumer protection by offering enough freedom to pension and insurance fund managers to obtain a real return - one that would beat inflation.

A recent review of NPS's private sector recommended widening asset classes and use of instruments, including repos, securities lending and derivatives with appropriate “caveats and ceilings”.

Following the report, the fund’s regulator PFRDA said this week that it plans allow the short lending of securities.

“It provides an incremental return on an idle portfolio,” PFRDA officials said this week.

“So if an investor intends to hold securities long term, in the shorter term they could lend the securities whenever there is a demand and get additional return in terms of lending fees”.

Either the National Securities Clearing Corporation (NSCCL) and BSE Clearing Corporation would be the guarantors.

The Securities and Exchange Board of India’s (SEBI) securities lending mechanism were originally formed in May 1997 and last modified in November 2012.