New NPS Investment Option: Maximize Equity Returns with the Balanced Life Cycle Fund

New NPS Investment Option: Boost Your Equity Returns with the Balanced Life Cycle Fund

The Pension Fund Regulatory and Development Authority (PFRDA) has introduced a new investment option under the National Pension System (NPS) called the Balanced Life Cycle Fund. This fund offers NPS subscribers the chance to stay invested in equities for up to 45 years, a significant extension from the current 35-year limit. The longer investment horizon is designed to help investors maximize their equity returns over time.

This new option is available to private-sector NPS subscribers, whether they are investing through their employer’s corporate model or as individual citizens.

Key Features of the Balanced Life Cycle Fund

The Balanced Life Cycle Fund automatically adjusts asset allocations—across equity, government securities, and corporate bonds—based on the investor's age and risk profile. The maximum equity allocation under this fund is 50%, and it starts tapering off after the subscriber reaches 45 years of age. This is in contrast to existing life cycle funds, where equity allocation begins reducing after the age of 35.

Current NPS Investment Choices

Under the NPS, investors have two main options: Active Choice and Auto Choice.

Active Choice: Investors can decide how to allocate their contributions, with a maximum equity allocation of 75% until age 50, gradually reducing to 50% by age 60. The remaining funds can be invested in government securities, corporate bonds, and alternative investments, although alternative investments are capped at 5%.

Auto Choice (Life Cycle Funds): The Auto Choice option automatically adjusts investments as the subscriber ages. There are currently three options: LC75 (Aggressive), LC50 (Moderate), and LC25 (Conservative), each offering different equity allocations. For example, LC75 maintains a 75% equity allocation until age 35, then gradually decreases as the subscriber approaches 55.

What the Balanced Life Cycle Fund Offers

According to the PFRDA’s circular dated October 1, 2024, the new Balanced Life Cycle Fund gives investors a longer window for equity growth. Unlike existing funds, where equity exposure decreases after age 35, the Balanced Life Cycle Fund allows for a higher equity allocation until age 45, providing an opportunity for potentially higher returns.

Importantly, the existing Active and Auto Choice options remain unchanged, with the Balanced Life Cycle Fund being an additional choice for investors. The Moderate Life Cycle Fund (LC50) continues to be the default option for those who don’t actively choose a different investment strategy.