Now NPS is likely to have higher equity allocation.
PFRDA has floated a concept paper in which it has proposed to raise equity exposure in active choice NPS to 75% of the total corpus, from the current limit of 50%.
Considering the long term nature of pension product like NPS, PFRDA said that higher exposure to equity will help subscribers benefit from attractive returns over the long term. “Allowing subscribers to allocate more funds in equity may enable fund managers to generate better returns in times of interest downturn cycle as the risk premium of equity over risk-free returns is quite high in a country like India over a long-term period,” the paper mentioned.
PFRDA expects that the move to attract private sector subscribers. The pension fund regulator said that subscribers have demanded an increase in equity allocation to 75% in active choice, at par with auto choice. The paper also states that as India’s economy is moving from that of a developing country to a developed country, the interest rates may come down in the future.
Currently, government employees get the benefits of higher equity exposure of up to 75% in auto choice, provided the subscriber is not above 35 years. Such an equity exposure decreases with increase in age.
Currently, there are two types of choices for NPS subscribers. Active choice is for those who want to decide the asset class allocation on their own. In auto choice, there are three lifecycle funds. In the aggressive lifecycle fund, the maximum investment in equity is restricted to 75% whereas it is restricted to 25% for conservative lifecycle funds.
PFRDA has asked stakeholders to give their feedback by March 18, 2018.
