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Private sector subscribers of the National Pension Scheme (NPS) can now opt for a maximum equity exposure of 75 per cent under the active choice option (where the subscriber actively decides where his contribution is to be invested), a top official of fund regulator PFRDA has said. “We have operationalised this from August 31. We have modified the form, which allow a person to opt for equity investments up to 75 per cent under active choice,” Hemant Contractor, Chairman of the Pension Fund Regulatory and Development Authority (PFRDA), told BusinessLine.
Market feedback
He said the change was made on the basis of market feedback. “The feedback showed that a lot of people are interested in making higher investments in equities. If we go by this, there will be a lot of people going to up their equity exposure from 50 per cent,” Contractor said.
The earlier 50 per cent equity cap was seen to be too low for young workers, who dominate the NPS subscriber base.
Currently, the National Pension Scheme’s private sector corpus stands at about ₹28,000 crore. As much as 37 per cent of this amount is invested in equities.
The latest move, allowing up to 75 per cent in equities, will only increase the flow of pension money into equities.
Asked if it would be prudent for NPS subscribers to put more into equities in a volatile market, Contractor said the PFRDA was only giving NPS subscribers a “choice” and they were under no compulsion.
The clinching argument in favour of equities is that they provide better returns in the long-term and there is enough empirical evidence supporting the case for stocks, said Contractor.
“Since pension is a long-term benefit, it does make sense to have some equities in one’s investment portfolio,” he said.
Correction
The report has been modified to change the date in PFRDA Chairman's quote. NPS subscribers are allowed to invest up to 75% in equities as of August 31, and not October 31 as an earlier version said.
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