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In a recent announcement, the Pension Fund Regulatory and Development Authority (PFRDA) of India revealed plans to introduce a balanced life-cycle fund for National Pension System (NPS) subscribers in the upcoming September quarter. This new fund will serve as an additional option within the auto choice feature, allowing for a maximum equity allocation of up to 50%. However, the tapering of equity exposure will only commence after the subscriber crosses the age of 45 years, providing individuals with the opportunity to accumulate a larger retirement corpus. Life-cycle funds are designed to automatically adjust asset allocation, reducing risk as the retirement date approaches.
The current NPS offerings include two choices: active and auto. Under the active choice, subscribers have the freedom to determine their allocation across equity, corporate bonds, and government securities. On the other hand, the auto choice offers three options: Aggressive Fund (75% equity allocation), Moderate Fund (50% equity allocation), and Conservative Fund (25% equity allocation). The equity allocation in all options starts decreasing after the subscriber turns 35 years old. The auto choice permits a maximum of 20% equity fund allocation at 50 years, gradually reducing to 15% by the age of 55 years.
PFRDA Chairman, Deepak Mohanty, reported a significant increase in non-government sector subscribers to NPS in the fiscal year 2023-24, with a boost in assets under management (AUM) to ₹11.73 trillion, marking a 30.5% year-on-year growth. As of May 31, 2024, the total NPS subscriber base stands at 180 million. Mohanty also shared the regulator’s goal of adding 1.1 million non-government subscribers in the fiscal year 2024-25.
Furthermore, the total gross enrollments under the Atal Pension Yojana (APY) surpassed 66.2 million as of June 20, 2024, with over 12.2 million new enrollments recorded in 2023-24, marking a record high since the scheme’s inception. The proposed balanced life-cycle fund aims to provide NPS subscribers with an attractive long-term investment option, fostering a balanced approach between risk and returns in pension funds.
