The primary government organization for pension regulation, Pension Fund Regulatory and Development Authority (PFRDA), is going to bring in several changes to the NPS retirement plan. From higher equity allocation to more choices for top fund managers, and changes in the number of asset allocations, the government is planning to make NPS an attractive retirement solution.
NPS accounts for 21% of the total assets managed by the pension sector equating to Rs 7.3 trillion. Currently, NPS subscribers can select their allocation to three different asset classes: equities, government securities, and corporate bonds. The allocation to these asset classes can presently be changed twice a year. In near future, the number is going to increase to 4 for both tier-1 and tier-2 accounts. A tier-1 account is mandatory with a specific lock-in period and helps save tax.
Why are more options to change asset allocation a positive change for investors?
More options to change asset allocation means investors can take advantage of market movements. Supratim Badhyopadhyay, Chairman, PFRDA, had a word of advice for the NPS investors. He said, “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 the long term and should prudently use them.” For investors who have opted for auto allocation of segments, the investments will be balanced out based on their age and selection of the assets.
More choices for top fund managers
When the new changes in the NPS plan come into effect, investors will have more options to choose from when it comes to fund managers. Currently, investors can choose one manager from a pool of 7. With Tata, Axis, and Max Life receiving approval for new fund managers, the pool is going to increase to 10. Unlike earlier when all asset classes were managed by one fund manager, all non-government subscribers can avail of one fund manager for each class of asset they invest in.
Additional changes are in the offing
In addition to the aforementioned changes, the PFRDA is also planning to permit the allocation of 100% of assets into equity in tier-2 accounts. Investors will soon be able to see the risk profile of the NPS scheme of each fund manager, similar to the risk-o-meter concept in mutual funds. This will help investors make the right decision. The PFRDA will also offer an assured return scheme for investors however it may be linked to an external variable.
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