Balanced Life-Cycle Fund for NPS Subscribers in the Works: PFRDA Chief Deepak Mohanty

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PFRDA to Launch Balanced Life-Cycle Fund for NPS Subscribers

India's pension fund regulator, the Pension Fund Regulatory and Development Authority (PFRDA), is set to introduce a balanced life-cycle fund aimed at subscribers who prefer a higher equity allocation in their portfolios. This initiative, expected to launch in the September quarter, was announced by PFRDA Chairperson Deepak Mohanty on Friday.

“The fund will be an additional option in the auto choice, allowing a maximum equity allocation of up to 50%, with tapering starting only after 45 years of age,” Mohanty explained during the PFRDA's Annual Felicitation Program for Atal Pension Yojana (APY) in New Delhi. “This will help subscribers accumulate a larger corpus in their individual retirement funds.”



Understanding Life-Cycle Funds

Life-cycle funds are asset-allocation funds that automatically adjust the share of each asset class to lower risk as the retirement date approaches.

Current NPS Options

The National Pension System (NPS) currently offers two choices for creating a pension portfolio: active and auto.

Active Choice: Subscribers independently decide the allocation across equity, corporate bonds, and government securities.

Auto Choice: Subscribers choose from three options:
Aggressive Fund: 75% equity allocation
Moderate Fund: 50% equity allocation
Conservative Fund: 25% equity allocation
In the auto choice, equity allocation starts tapering off after a subscriber turns 35. Currently, auto choice allows a maximum of 20% equity allocation at age 50, which further reduces to 15% by age 55.

Growth and Future Plans

In the fiscal year 2023-24, the PFRDA added 947,000 new subscribers from the non-government sectors to the NPS, boosting the NPS' assets under management (AUM) by 30.5% year-on-year to ₹11.73 trillion. The total NPS subscriber base reached 180 million as of 31 May 2024.

Additionally, the total gross enrolments under the Atal Pension Yojana (APY) exceeded 66.2 million as of 20 June 2024, with over 12.2 million new subscribers added in 2023-24, marking the highest enrolment in a fiscal year since the scheme's inception.

The PFRDA aims to add 1.1 million non-government subscribers in the fiscal year 2024-25.

Conclusion

The introduction of a balanced life-cycle fund for NPS subscribers reflects the PFRDA's commitment to providing diversified investment options that cater to varying risk appetites and retirement goals. This move is expected to help subscribers build a more substantial retirement corpus by allowing higher equity exposure until later in life.






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