India is weighing an overhaul of investment rules for its $180 billion national pension system that would give fund managers greater freedom to invest in lower-rated debt, alternative assets and a wider range of equities, according to people familiar with the matter.

The proposed changes are being drawn up by a panel of the Pension Fund Regulatory and Development Authority that’s expected to submit its recommendations on revised investment guidelines soon, the people said, asking not to be identified because the deliberations are private. The regulator’s board would need to approve the suggestions before they could go into effect, according to the people.

The potential overhaul would mark a significant expansion of the investment universe for India’s pension funds, giving managers more flexibility to seek higher returns and diversify beyond highly rated bonds and the country’s largest listed companies. It could also channel a growing pool of long-term retirement savings into corporate credit, private markets and a broader swath of Indian equities.

Any efforts by India to channel more money into markets would have wide-ranging effects at home and overseas. Domestically, retail investors have been pouring billions into the nation’s $4.8 trillion stock market. The swelling inflows and growing wealth are encouraging global giants from Blackstone Inc. to UBS Group AG and Goldman Sachs Group Inc. to build or expand their Indian presence in a variety of ways.

Under one proposal being considered by the Indian pension regulator’s panel, the universe of eligible listed equities where investment is permitted could be expanded to as many as 500 companies based on market capitalization, up from the top 250 that are currently permitted, the people said.

Also among the proposals under consideration is greater flexibility for pension funds to invest in lower-rated corporate debt. Such investments could be permitted when securities carry the same rating from at least two credit-rating agencies, the people said. Existing rules restrict pension funds’ exposure to lower-rated corporate bonds.

A wider deployment of retirement savings could deepen liquidity in domestic capital markets, potentially providing a steadier source of long-term funding at a time when geopolitical tensions have roiled international markets, placing Indian equities among the worst performing globally this year.

The changes would also be significant because they could break with India’s long-standing history of limiting some of its biggest investment pools from investing in asset classes that are perceived as less liquid. A spokesperson for the pension regulator said that the panel’s “report is still awaited.”The push to broaden investment options comes as lackluster equity-market returns increase pressure on fund managers to find new sources of performance. The potential for higher returns, however, would come with greater calculated risks in some cases because assets like lower rated bonds are typically seen as riskier. Some of these expanded investments would also expose retirement savings to valuation risks.

The committee is considering creating a separate category for alternative assets within the pension system’s investment framework, which currently has no standalone allocation for such investments. The change could broaden the range of assets available to pension fund managers and allow them to diversify beyond traditional stocks and bonds.

Another proposal would allow pension funds to invest in private markets, or unlisted equities, giving managers access to companies before they enter public markets and potentially open up additional sources of returns.

India’s 17.47 trillion rupee ($183 billion) National Pension System is used for retirement savings by a wide variety of citizens from salaried employees to farmers. The government is attempting to widen its use across the nation.

The regulator constituted the panel, called the Strategic Asset Allocation and Risk Governance Committee, in January to review the pension system’s investment framework and recommend changes to asset allocation, risk management and governance.

India is seeking to draw more fund managers, including foreign players, into its fast-growing pension industry as the regulator opens up a market dominated by state-backed firms and large domestic financial groups. SBI Pension Funds, LIC Pension Fund and UTI Pension Fund dominate the industry while firms founded by HDFC Bank Ltd. and ICICI Bank Ltd. are among the largest private-sector managers.

The overhaul may also introduce standardized performance benchmarks for pension funds, creating a common yardstick for users and regulators to compare returns across managers.