NPS equity funds can now invest in gold, silver ETFs & IPOs

Summary: With new exposure to gold, silver and alternative assets, the revised NPS rules aim to build more diversified, resilient pension fund portfolios across different asset classes.

The Pension Fund Regulatory and Development Authority (PFRDA) has announced a major overhaul of investment rules for the National Pension System (NPS), marking one of the biggest resets in how retirement savings are deployed. The changes affect both equity and corporate debt investments, with the aim of giving savers better diversification and stronger risk controls. Here are some of the most notable changes:

For equity schemes

• Exposure to gold, silver ETFs, REITs

Equity-focused pension funds can now have up to 5 per cent combined exposure to real-estate investment trusts (REITs), equity-oriented category I and II alternative investment funds (AIFs), and gold and silver ETFs. This is meant to introduce controlled diversification without shifting focus away from core equity holdings.

• IPO participation allowed, with size safeguards

Funds can take part in IPOs, FPOs and offer-for-sale, but only in relatively large companies. Any new listing must have a free-float market value at least equal to the 250th company in the Nifty 250 index. If a stock later falls below this threshold, it must be reviewed for exit within a year.

• Portfolios anchored to the top 200 stocks

At least 90 per cent of the fund assets must be invested in the top 200 stocks of Nifty 250, with flexibility to include BSE 250 constituents not present in Nifty 250. This is to ensure portfolios remain anchored to large and liquid companies.

• Allocation to index mutual funds and ETFs

Funds may invest up to 5 per cent in index mutual funds and ETFs that track major indices like the Nifty 50 and Sensex. This offers a low-cost way to supplement direct stock exposure.

• Derivatives only for hedging

Funds can also invest in derivatives, but strictly for risk protection and hedging purposes. Their exposure cannot exceed 5 per cent of the portfolio.

For corporate debt schemes

Corporate debt pension funds get a broader investment universe, but with tight quality filters.

• Broader mix of eligible debt instruments

Corporate debt funds can now invest in bank issuances, long-term bank deposits, rupee bonds from multilateral agencies and suitable debt mutual funds.

• Inclusion of municipal, infrastructure and trust-backed debt

The list now covers municipal bonds, debt issued by InvITs (infrastructure investment trust) and REITs, mortgage-backed securities and select debt-oriented AIFs. Banks’ additional Tier-1 bonds will also be permitted, giving room for more diversified fixed-income exposure.

The new rules take effect immediately and are expected to reshape how NPS managers build portfolios across all major asset classes.

Also read: PPFAS plans IPO in five years, entry into NPS