Three Indian state-run firms will start managing the government's new pension fund of more than 20 billion rupees ($503 million) from the end of June next year, the pension fund regulator said.

State Bank of India, Life Insurance Corp and UTI Asset Management will have separate management companies to run the fund for about 300,000 employees who joined service after January 2004.

Pension Fund Regulatory and Development Authority chairman D Swarup said SBI would manage 55 per cent of the total corpus as the bank bid the lowest fund management cost of 3 basis points.

UTI will get 40 per cent and LIC the remaining 5 per cent of corpus. Both will have a fund management cost of 5 basis points.

'The pension fund managers will start operations latest by June end,' Swarup told a news conference.

There will be two schemes on offer, he said. The first option will invest the full amount in bonds; while the other allows investment up to 5 per cent in equities, 10 per cent in equity oriented mutual fund schemes and the remainder in bonds.

National Securities Depository Ltd has been appointed as the record keeper for the new pension, which was started in 2004 for new federal and state government recruits.

At present, pension contributions go into a separate government account that fetches eight percent interest annually.

So far, federal government employees contributed 12 billion while 8 billion rupees came from employees of 19 states that decided to implement the new pension system.

'We expect 10 billion rupees attrition annually in the pension fund corpus,' Swarup said.

India is allowing only state-run firms to manage the new pension fund for government employees. A legislation is pending in parliament for approval that will allow foreign firms to own a maximum 26 per cent in the pension fund management company.Reuters