The first of the six pension funds to be set up in the country is to be launched on October 2, well in time to operationalise the new pension scheme for government employees joining after October.

The modalities for the pension funds will be decided by the interim pension regulatory authority, which would soon go before the Cabinet for approval.

"The Cabinet note is ready for setting up the interim pension regulatory authority," official sources told PTI.

There is a strong possibility that finance secretary S Narayan, who is retiring in June, is likely to head it, the sources said. His place is likely to be taken over by expenditure secretary D C Gupta.

The government has decided to set up six pension funds of which one would be in the government sector and the rest in the private sector for which insurance companies, mutual funds including Unit Trust of India and financial institutions with experience in fund management would be eligible.

Just as in the case of Securities and Exchange Board of India and Insurance Regulatory and Development Authority, an interim regulator would be set up and subsequently a permanent pension authority would be established after the passage of pension regulatory authority bill in the monsoon or winter session of Parliament.

The terms and conditions for pension funds, including the minimum capital would be decided by the regulatory authority, the sources said, adding that it had not yet been decided how much foreign direct investment would allowed in pension funds.

"There will certainly be a cap on FDI just as in the case of insurance," the sources said, adding that there would be only six players unlike in insurance where it was open to any number of players fulfilling the norms laid out by IRDA.

A significant aspect of the pension fund, the sources said would be to allow them to invest outside the country to enable the pensioners get best possible returns.

Mutual funds are now allowed to invest abroad up to $1 billion as part of the efforts to move towards  capital account convertibility and pension funds too would be initially allowed to invest up to $1 billion abroad, the sources said.

All the six pension funds are likely to be become  operational between October and December, they said, adding that so far no one has come forward to establish the government pension fund.