You can now change your NPS allocations twice a year
3 min read . Updated: 14 Mar 2017, 09:57 AM IST
PremiumNPS subscribers can now change their investment options and allocation ratios for their corpus twice a year
The Pension Fund Regulatory and Development Authority (PFRDA) has announced some changes to the asset allocation rules for the National Pension System (NPS). From financial year 2017-18, subscribers of the NPS will have a greater say in their asset allocation.
NPS subscribers can now change their investment options and the allocation ratios for their corpus twice in a financial year. At present, such changes are allowed only once in a financial year.
NPS subscribers, except those who are government employees, can choose between two options—Active Choice and Auto Choice. These options determine where and how the subscriber’s money would be invested.
The Auto Choice option is primarily aimed at assisting individuals who need help in deciding their asset allocation. When a subscriber chooses this option, it adopts a lifecycle-based approach, in which the allocation to different asset classes changes gradually as the person’s age increases.
The default option under Auto Choice is a moderate fund. Here, if an individual starts at a young age, then up to 35 years of age, she has the maximum exposure to equity. After this, the exposure to equity gradually reduces over the years, to 10%, when the subscriber turns 55 years old.
In the default option under the Auto Choice, equity allocation till 35 years is 50%, allocation to class C (corporate bonds) is 30% and the allocation to class G (government securities) assets is 20%.
By the time the subscriber reaches 55 years of age, this allocation changes to 10% to equities, 10% to class C assets and 80% to class G assets.
However, these options are not set in stone. The subscriber has considerable choices even in the Auto Choice option.
As per changes made in the NPS in November last year, a subscriber now has an option to choose between aggressive and conservative funds, apart from the default moderate funds. If you chose to invest in an aggressive fund, then you can have equity exposure of 75% up to 35 years of age. Equity exposure for the conservative fund is capped at 25% till that age. In case you do not specify whether you want to choose an aggressive, conservative or moderate fund, while opting for the Auto Choice option, you will be deemed to have chosen the default option of moderate fund.
The Active Choice investment option is suitable for those individuals who want to have much greater choice in deciding their asset class allocation.
While asset classes remain the same for all subscribers, the allocation can change based on the subscriber's choices. So, when a subscriber chooses the Active Choice mode of investment, she has four asset classes to choose from:
—alternative investment scheme,
—equity market instruments,
—non-government fixed income securities, and
—government securities.
While a subscriber can choose to invest 100% in fixed income and government securities, there is a cap on how much can be invested in the other asset classes. The alternative investment schemes can be allocated a maximum of 5% and equity can have a maximum of 50% at any time.
After choosing your fund manager, which is allowed only once a year, you can spread the investment corpus between the asset classes, subject to the cap on equities and alternative investment funds.
As per the recent changes brought in by PFRDA, you can now choose to change the allocation to different asset classes twice in a financial year, from 2017-18, instead of just once, as was the case till now.
So, if you are on Auto Choice, you can change to Active Choice, or vice-versa twice a year. And, if you are in Active Choice, you also get to change your asset allocation twice a year. However, you can select the pension fund manager only once a year.
Moreover, the changes will be applicable to both tier-1 and tier-2 accounts. Tier-1 accounts in NPS are the pension accounts while tier-2 accounts are for voluntary savings and investments. Tier-2 contributions can be moved to tier-1, but the reverse is not allowed.
