You will soon be able to invest up to 100% in stocks in the National Pension System (NPS) Tier II account. In an interview with Outlook Money, the chairman of the Pension Funds Regulatory and Development Authority (PFRDA), Supratim Bandopadhyay, said: “We allow people to invest up to 100% in stocks, in accordance with the customer request, subject to board approval.
You may soon have the option of increasing your equity exposure from the current 75% to 100% in the Tier II account. This makes the NPS Tier II account, which is already quite flexible, more attractive.
“People who have a very high risk appetite at a young age and want to invest heavily in stocks will benefit from this flexibility in the Tier II account,” Bandopadhyay said.
The pension regulator has also revealed that the new guaranteed minimum return product it plans will be released in the next six to eight months. “We have now selected a company and are working with it. So, in the next six to eight months, an assured minimum return product will be there,” he said.
Discussing the return-assured product in more detail, he said that NPS could provide a floating warranty. “It can vary depending on market benchmarks like one-year Treasury bills (T-Bill) or one-year government bonds and it will reset every year. We are looking at all possibilities,” Bandopadhyay said.
— PFRDA (@PFRDAOfficial) March 15, 2022
How will 100% equity change your investment model?
NPS has a two-tier structure, in which the Tier I account is mandatory but the Tier II account is optional for subscribers. Under the NPS, you have four investment choices: equities, government securities, corporate bonds and alternative investment funds. From now on, equity participation is capped at 75%, subject to certain conditions. This may soon change for Level II accounts.
Investing is done in two ways: active and automatic choices. Under active choice, you can decide how much to invest among the four options, subject to certain limits. Here you would assess your risk profile yourself. However, under the automatic choice, the choice and amount of investment in the four options is automatic, as the name suggests. NPS profiles you according to your age and invests accordingly. For example, it reduces your stock investment as you get older.
Level II account offers more flexibility. To start, you can withdraw from this account at any time, unlike the Tier I account. You can open the Tier II account with a minimum contribution of Rs 1,000 and can contribute in multiples of Rs 250 thereafter. However, it is not mandatory to make an annual contribution to the account.