In order to provide wider choice to NPS subscribers, PFRDA has introduced two new funds – Aggressive Life Cycle Fund and Conservative Life Cycle Fund for the private sector NPS subscribers.
As the name suggests, Aggressive Life Cycle Fund enables subscribers to get equity exposure of up to 75% of corpus till the age of 35. Such an exposure is gradually reduced to 15% by the age of 55. Similarly, Conservative Life Cycle Fund will deploy at least 25% of corpus in equity instruments in the initial years (till 35 years) and be reduced to 5% at the age of 55.
This has come into effect immediately.
Earlier in April, an expert committee headed by G.N. Bajpai had recommended PFRDA to increase the cap on equity exposure of life cycle funds in NPS from 50% to 75%. In September 2014, PFRDA had constituted this committee to review investment guidelines for NPS in private sector.
Life cycle fund is an NPS scheme in which allocation towards equity decreases with the increase in age of subscribers. Typically, such schemes deploy 50% of corpus in equity till the subscriber attains 35 years of age; after which the fund reduces its equity exposure by 2% every year. This exposure comes down to 10% by the time subscriber attains 55 years of age.
Going forward, PFRDA may revamp the life cycle funds by introducing dynamic asset allocation investment style considering the dynamic nature of equity instruments. Simply put, exposure towards equity can be increased when valuations are low and vice versa.
The pension fund managers manage an AUM of over Rs.1.50 lakh crore under NPS as on October 31, 2016.