100% Equity in NPS: Is it right to invest the entire NPS corpus in equities? Know the new rules and expert opinions..

NPS 100% Equity Investment: There is a major update for investors in the National Pension System (NPS), a retirement fund vehicle. The Pension Fund Regulatory and Development Authority (PFRDA) has introduced a significant change. Under the new Multiple Scheme Framework (MSF), non-government subscribers—specifically those in the private sector and the self-employed—can now invest 100% of their NPS contributions in the stock market.

Previously, private sector investors opting for the 'Active Choice' were permitted a maximum equity allocation of only 75%; the path has now been cleared to increase this limit to 100%.

What is the new rule?

The benefit of 100% equity allocation will be available under 'High-Risk Variant' schemes. The new Multiple Scheme Framework allows investors to select multiple schemes from different pension fund managers under a single Permanent Retirement Account Number (PRAN). Currently, this facility is available to corporate employees, the self-employed, and general citizens.

Who stands to benefit the most?

Investors aged between 20 and 35 have a long investment horizon. Staying invested in 100% equity during these early years allows them to reap substantial benefits from compounding. This option also suits investors who are undeterred by market volatility and seek aggressive returns from their pension funds, similar to the returns seen in mutual funds.

The risk of investing 100% in equities

A downturn in the stock market can lead to a sharp decline in the value of the pension fund. If an investor remains 100% invested in equities while nearing retirement (e.g., between the ages of 55 and 60), a market crash could significantly erode their accumulated retirement corpus.

Analyst View: Should you opt for 100% equity? Financial experts believe that a 100% equity option can prove to be an excellent 'wealth-building tool' for individuals in the early stages of their careers. However, as one ages, it is considered prudent to gradually reduce equity allocation and shift towards debt instruments or government securities to safeguard the accumulated corpus.

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