Wider universe
At the core of the reform is a more contemporary investment framework. Equity allocations have been broadened to include the entire Nifty 250 universe, select BSE 250 stocks, equity mutual funds (up to 5% of assets), IPOs/FPOs subject to size filters, and additional market-linked instruments such as Real Estate Investment Trusts (REITs), equity-oriented Alternative Investment Funds (AIFs), and gold and silver Exchange Traded Funds (ETFs), with their combined exposure capped at 5%. Pension funds may also deploy exchange-traded derivatives for hedging within a 5% limit. This widens the investible landscape while introducing tighter governance, including defined timeframes for rebalancing when index compositions change. Debt allocations have undergone a transformation too. Beyond traditional corporate bonds and bank deposits, pension funds can now access REIT and InvIT debt, municipal bonds, infrastructure bonds, mortgage-backed securities, asset-backed securities, infrastructure debt funds, debt-oriented AIFs, and Basel III Tier-I bonds. The circular also sets industrylevel exposure caps, stricter single-issuer limits and safeguards on lower-rated paper, including mandatory credit-default-swap protection when funds venture below AA ratings. The government-securities category widens marginally, allowing up to 10% exposure to fully serviced PSU bonds and up to 5% in gilt-focused mutual funds. Short-term parking rules have also been aligned with modern liquidity practices, permitting temporary allocation to money-market instruments, overnight and liquid funds, and TREPS within a 10-20% cap.
More options
Taken together, the rules move NPS towards a more modular, market-linked structure, an evolution strongly reflected in the shift to the Multiple Scheme Framework (MSF), which allows subscribers to blend different strategies within the same account. Shweta Rajani, Head of Mutual Funds at Anand Rathi Wealth, calls the reforms “among the most meaningful in India’s retirement-planning framework.”
She highlights the option to take equity exposure up to 100% under select schemes as especially beneficial for younger investors: “Higher equity exposure supports stronger compounding, making retirement savings more capable of keeping pace with rising life expectancy and future living costs.” The wider investment basket also improves diversification.
Another critical reform under discussion is the proposed easing of withdrawal rules, which may allow retirees to take up to 80% of their corpus as a lump sum, reducing their forced reliance on annuities and improving postretirement cash-flow planning.
Rajani also offers a balanced caution: “Despite these advancements, NPS continues to carry long lock-ins and liquidity constraints, making it unsuitable for goals requiring early access. Tax treatment of withdrawals also needs careful comparison with other vehicles like diversified equity mutual funds and ELSS.”
Overall, PFRDA’s overhaul positions NPS as a more investor-centric retirement solution, but one that must be weighed thoughtfully within a broader financial plan.