NPS subscribers can now invest up to 75% in stocks – here’s what that means

The Pension Funds Regulatory Authority (PFRDA) has recently revised the capital allocation standards for National Pension System (NPS) accounts. As a result, NPS subscribers can now invest up to 75% of their funds in (E) shares under active choice without any tapering requirements from age 51 as before.

In addition, the PFRDA has decided to allow an option to allocate 100% of a subscriber’s contribution to Tier II (optional account) E (shares) asset class under active choice without any reduction condition from the age of 51.

Under the NPS-All Citizen model, from now on, subscribers have the option to select one of the registered pension funds and actively allocate their contributions between four asset classes, namely (E) shares , corporate bonds (C), government securities (G ) and Alternative Assets (A) with ‘Active Choice’.

Subscriber at age 51, the 75% limit on asset class E has been reduced by 2.5% per year and replaced with government securities.

The PFRDA further stated that the pension funds have prepared risk profiling of the respective schemes across different asset classes to disclose the level of inherent risks involved.

“Before choosing the investment program / asset class, subscribers are invited to independently assess the performance of the asset class and the risks involved and to choose the investment option according to the profile program risk,” the regulator said.

For the uninitiated, the National Pension System or NPS, a government-run investment scheme, gives the subscriber the ability to set the preferred allocation to different asset classes.

NPS offers two types of accounts – Tier 1 and Tier 2 – for instruments such as government bonds, equity market and corporate debt.

While the NPS Level 1 account is strictly a retirement account, the Level 2 account – known as the investment account – is a voluntary savings account associated with the Pensions Regulatory Authority of India (PRAN).

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