PFRDA plans to expand NPS investment universe with gold, silver, AIFs

The Pension Fund Regulatory and Development Authority (PFRDA) is preparing a major revamp of the National Pension System (NPS) investment framework, expected to broaden the universe of investible assets. The move is aimed at giving pension funds greater flexibility and aligning the NPS more closely with the diverse needs of subscribers. The regulator is working on a new list of instruments that will include commodities such as gold and silver, and unlisted companies through alternative investment funds (AIFs).

“There is a demand for commodities, really a demand for gold and silver… more from a safety point of view rather than a return point of view,” PFRDA Chairperson Sivasubramanian Ramann told CNBC-TV18. He added that the revised guidelines are likely to be finalised in 30–45 days, enabling pension funds to roll out fresh schemes and channel long-term capital to emerging sectors.

Notably, AIF investments may be classified as a separate asset class instead of being clubbed under equity or debt. This would make portfolio operations smoother for fund managers and provide a clearer structure for risk management.

New pattern

The reforms come as part of PFRDA’s broader effort to make the NPS more attractive for private sector employees, self-employed professionals, and gig workers. One circular, effective October 1, introduces a new framework for investments. Another exposure draft on annuitisation and exits remains open for public comments until October 17.

A central feature of the new framework is the multiple scheme framework (MSF). This allows NPS subscribers to invest in more than one scheme managed by pension fund managers, who will now be permitted to launch additional funds. In each category, two schemes may be offered: one with high risk and another with moderate risk.

To give subscribers more freedom, PFRDA has proposed allowing 100 per cent equity exposure under MSF, up from the current 75 per cent limit. Existing subscribers can remain with current schemes while also accessing the new ones, with all investments linked to a single PAN.

The new funds will come with a 15-year lock-in, and switches will be permitted only to existing NPS schemes if underperformance occurs. Switching to other newly launched funds will not be allowed, making careful scheme selection critical.

Proposals in the pipeline

Two proposals from the exposure draft have far-reaching implications. First, the compulsory annuitisation requirement may be reduced from 40 per cent of the accumulated corpus to 20 per cent. Second, subscribers could be allowed to exit the NPS after 15 years, even before reaching 60 years of age.

These changes are designed to improve flexibility and appeal, especially for younger workers and those with non-traditional career paths.

Tax clarifications

While the reforms open new avenues, they also raise fresh questions. For high-income earners targeting financial independence early (FIRE), the 15-year lock-in may be beneficial. But for those with moderate incomes, it might fall short of building an adequate retirement corpus.

Allowing 100 per cent equity could boost long-term returns, but retirees remain exposed to market volatility if a downturn coincides with their exit year. Restrictions on switching between new schemes further add to the risk of misaligned fund choices.

Taxation is another grey area. At present, those exiting NPS before 60 must annuitise 80 per cent of their corpus, unless the total corpus is under Rs 2.5 lakh. It remains unclear whether the new proposals—particularly the 20 per cent annuitisation and early exit after 15 years—will alter the tax exemptions currently available.

As PFRDA moves forward with these reforms, the expansion into commodities, AIFs, and multiple scheme structures marks a significant evolution for NPS, balancing innovation with the need for clarity on risks and tax treatment.