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National Pension Scheme to let subscribers change asset allocation four times a year

More options to change the asset allocation mean savvy subscribers can take advantage of market movements.

June 15, 2022 / 02:26 PM IST

Pension sector regulator Pension Fund Regulatory and Development Authority (PFRDA) has unveiled its plans to make the National Pension Scheme (NPS) a more feature-rich retirement solution. The regulator unveiled its various initiatives such as allowing higher equity allocations, more choices of fund managers and more changes in asset allocation in a year.

Out of the estimated Rs 35 trillion worth of assets managed by the pension sector, NPS accounts for 21 percent of the assets, totalling Rs 7.3 trillion. The NPS allows the subscribers to decide their allocation to three asset classes – equity, government securities and corporate bonds. NPS also allows investments in alternative assets. So far this asset allocation can be changed by subscribers twice a year if they have opted for active choice asset allocation. Soon the subscribers will be offered to change this asset allocation four times a year – for each tier I and tier II accounts. Tier I is the mandatory account with a longer lock-in period and linked tax incentives.

More options to change the asset allocation mean savvy subscribers can take advantage of market movements. “Since there are requests from subscribers for allowing more changes in a year, we are allowing four changes in a year. But the subscribers should always remember that this product is aimed for long term and should use them in a prudent manner,” said Supratim Bandyopadhyay, Chairman, PFRDA.

Investors opting for auto choice of asset allocation need not worry about their investments as they get rebalanced depending on their age and choice between the assets.

As of now, the subscribers have to choose one pension fund manager for their investments from the available seven pension fund managers. However, going forward the investors will have more choices. Three new pension fund managers -- Axis, Max Life and Tata -- have received in-principle approval for pension fund manager. After receiving the final certification of business commencement these three will start offering their services, making a total of 10 pension fund managers to choose from for the subscribers. So far all asset classes were managed by a single fund manager, but going forward the non-government subscribers will get to appoint a separate fund manager for each asset class they invest into. However, it will not be mandatory to do so.


PFRDA is also planning to allow 100 percent allocation to equity in Tier II account of NPS.

Soon subscribers to NPS will also get to see the risk profile of the NPS scheme of each pension fund manager. Mutual fund investors are conversant with the risk-o-meter concept that tells the investor about the level of risk the portfolio of the scheme has taken. A similar measure in NPS will also help the subscribers make a more informed decision.

NPS offers market-linked returns. However, not all subscribers are comfortable with the concept. PFRDA is working on a proposal to offer a minimum assured returns scheme for the subscribers. The assured returns may be linked to an external variable such as a 10-year government yield. The assured returns are for the accumulation phase and the annuity rates will be decided at the time of purchasing the annuity from an insurer.
Moneycontrol PF Team
first published: Jun 14, 2022 08:43 pm
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