PFRDA Aims to Boost NPS Returns via Higher Equity Exposure and New Asset Classes

The Pension Fund Regulatory and Development Authority (PFRDA) is moving to raise equity exposure and gradually widen permitted asset classes under the National Pension System (NPS) to protect long-term returns amid a falling interest rate cycle. 

Equity Allocation Raised, Rebalancing Underway 

The regulator has increased the equity cap in the government composite NPS scheme and allocations have already moved up to about 19% from the earlier 15%, with a new upper ceiling of 25% now allowed. Pension funds are expected to steadily move toward this higher limit based on subscriber demand. 

“As equity exposure rises, corporate bond holdings have eased marginally, while the share of government securities has remained broadly stable,” the chairperson said, noting that portfolio mix is being adjusted without sharply reducing sovereign exposure. 

“If you look at the share of G-secs compared to last year, it is about the same. Equity has gone up a bit, and corporate bonds have come down slightly… equity has gone up to about 19 per cent,” Chairperson Sivasubramanian Ramann said, as per news reports 

New Assets, AIF Entry and Health-Linked Pilots 

PFRDA is also preparing to start investments in alternative investment funds (AIFs) under NPS. Operational systems have been put in place, and first allocations could happen before the end of the current financial year. 

“We have not put any money into it till now. We’ve created the structure, and the operating systems are in place. We should be able to have money flowing into AIFs fairly soon,” Ramann said. Limited exposure to gold and silver ETFs has also been allowed within the alternatives bucket under strict caps. 

Alongside diversification, the regulator is working on a market-linked assured return product with a defined return band instead of a hard guarantee and is piloting a medical savings-linked model under NPS with pension funds and hospital networks. On distribution, a digital gateway with NPCI is being built to enable simple UPI-based NPS onboarding. 

Read More: PFRDA Constitutes SAARG to Modernise NPS Investment Framework! 

Conclusion 

With higher equity limits and gradual entry into new asset classes, PFRDA is repositioning NPS portfolios for return stability while adding new product and distribution layers. 

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