The Pension Fund Regulatory and Development Authority (PFRDA) will launch a new Balanced Life Cycle Fund for the National Pension System (NPS) subscribers in September this year, Chairman Deepak Mohanty said on Friday, stressing the fund will provide an additional option to grow their retirement corpus with a longer equity exposure. Mohanty first revealed the plan during an address at the National Insurance Academy (NIA) in Pune in May, where he revealed that it will have a higher equity allocation, up to 50 per cent, and taper down from the age of 45.

He said its aim is to maximise pension wealth while optimising the risk and return in the long run. The new fund will also be available for the non-government subscribers, PTI reported.

What Does NPS Offer?

NPS is a social security pension scheme for resident and non-resident Indians. PFRDA has, of late, made several changes in the rules to make the scheme more attractive and flexible to meet the needs of subscribers. NPS subscribers can contribute in the ‘Active’ and ‘Auto’ modes. In the former, subscribers can choose the percentage of assets in the portfolio, such as equity, debt, and corporate bonds; in the latter, the process is automatic. In NPS, the equity exposure reduces periodically in a set framework with age, which applies to both modes.

Also Read: NPS To Launch New Balanced Life Cycle Fund With Higher Equity Allocation, Says Deepak Mohanty

What Is The New Balanced Life Cycle Fund?

This fund will start tapering equity exposure after the subscriber reaches 45, up from the existing 35 years. Mohanty said a few more changes will be made in the plan for subscribers’ benefit.

In the existing life cycle fund, the tapering of equity exposure starts at 35 in the Auto-choice mode. It continues to reduce until 55, depending on the selected options, such as Life Cycle (LC) 75, LC 50, and LC 25, in the ratio of 15, 10, and 5 per cent, respectively.

In active choice, the maximum equity allocation is 75 per cent up to 50 years; after that, it tapers down. At 60 and above, a subscriber can allocate up to 50 per cent in equity in active choice.

What Are The Current Life Cycle Funds In NPS?

NPS offers three life cycle funds based on the subscribers risk tolerance. Here are the details:

Life Cycle 75 or Aggressive Fund: It allocates up to 75 per cent in equity, the highest percentage, till 35; at 45 years, it reduces to 35 per cent; and at 55 and above, it is 15 per cent.

Life Cycle 50 or Moderate Fund: In this fund, the maximum equity allocation up to 35 years is 50 per cent; at 45, it is 30 per cent; and at 55 and above, it is 10 per cent.

Life Cycle 25 or Conservative Fund: This plan allows a maximum equity exposure of 25 per cent up to 35 years of age, 15 per cent at 45, and 5 per cent at 55 and above.

Also Read: Retirement Planning: A ‘LIFE-TIME’ Framework That Helps Seniors Earn Risk-Adjusted Return

How The New Life Cycle Fund Can Build A Bigger Corpus

Subscribers can take a longer equity exposure, up to the age of 45, 10 years more than the existing NPS life cycle funds. The tapering will start only at 45, which means they will get more time for higher equity allocation and grow their wealth. Equities can help rapidly compound your investments in the market, leading to a bigger retirement corpus in the long run.

According to Mohanty, the non-government NPS enrolment is expected to reach 11 lakh in FY2024-25 compared to 9.7 lakh in FY2023-24.