You may soon be able to invest up to 100 per cent in equities in the Tier II account of the National Pension System (NPS). In an interview with Outlook Money, Pension Fund Regulatory and Development Authority (PFRDA) chairman Supratim Bandyopadhyay said, “We are allowing people to go up to 100 per cent equity investment, in keeping with the request of customers, subject to board approval.”
You may soon have the choice to increase your equity exposure from the current 75 per cent to 100 per cent in the Tier II account. This makes the Tier II account of NPS, which is already quite flexible, more attractive.
“People who have very high-risk appetite at a young age and want to invest heavily in equity will get that flexibility in the Tier II account,” said Bandyopadhyay.
The pension regulator also revealed that the new minimum assured return product it is planning will be out in the next six to eight months. “We have selected a firm now and we are working along with them. So, in the next six-eight months’ time, a minimum assured return product will be there,” he said.
Discussing further about the assured return product, he said that NPS may provide a floating guarantee. “It may vary according to market benchmarks like one-year Treasury bill (T-Bill) or one-year government bond and it will be reset every year. We are looking at all the possibilities,” said Bandyopadhyay.
How Will 100% Equity Change Your Investment Pattern?
NPS has a two-tier structure, wherein the Tier I account is mandatory but the Tier II account is voluntary for subscribers. You have four investing choices under NPS—equity products, government securities, corporate bonds and alternative investment funds. As of now, the equity investment is capped at 75 per cent, subject to certain conditions. That may change soon for Tier II accounts.
Investment happens through two modes—active and auto choices. Under the active choice, you can decide the quantum of investment among the four options, subject to certain caps. Here you would be assessing your risk profile yourself. However, under auto choice, the choice and quantum of investment in the four options is automatic, as the name suggests. NPS profiles you according to your age and invests accordingly. For instance, it tapers down your equity investment as you grow older.
Tier II account offers more flexibility. For starters, you can withdraw from this account at any point of 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 in the account.