New NPS investment option Balanced Life Cycle Fund to help you build bigger retirement corpus; to be launched in July-September As the equity exposure reduces each passing year, the NPS subscriber does not need to manage the allocation according to the risk appetite actively. Now the equity exposure in the Balanced Life Cycle Fund has been increased till the age of 45. So several young NPS customers will benefit from it
Soon, the subscribers of the National Pension System (NPS) will have another option to invest in — The Balanced Life Cycle Fund. In this new fund, your investments are split equally between equity and debt until 45. After that, your equity exposure reduces every year. In a media briefing on June 21, 2024, Deepak Mohanty, chairperson of the Pension Fund Regulatory and Development Authority (PFRDA) said, that a balanced life cycle fund will be launched during the July-September quarter. What is a balanced life cycle fund? How is it going to benefit the NPS subscribers? Can an existing NPS subscriber move to the new balanced life cycle fund? ET Wealth Online explains.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
What are the NPS investment option at present?
When subscribing to the NPS, you are offered two investment options — 1) auto choice, and 2) active choice.Under the auto choice option, your money is automatically allocated to equity and debt based on age. At present, there are three types of auto choice options — LC 75 or Aggressive Life Cycle Fund, LC50 or Moderate Life Cycle Fund and LC25 or Conservative Life Cycle Fund.
Under LC 75 or Aggressive Life Cycle Fund, around 75% of your money is invested in equities until you turn 35. Once you cross that age, the equity exposure reduces — so with each passing birthday, your equity exposure will reduce and debt exposure will go up. By the time you are 55, your equity allocation will decline to 15%.
At present, LC50 or Moderate Life Cycle Fund is the default option in the auto choice option. Your investments are split equally between equity and debt until 35. By 55, your equity allocation will be just 10%, rest will be invested in debt.
Under LC25 or Conservative Life Cycle Fund, the equity exposure starts at 25% until 35 years and it gradually reduces with age. When you reach 55, your equity exposure is reduced to just 5%.
Under the active choice option, NPS subscribers have the freedom to decide the equity-debt allocation.
NPS Balanced Life Cycle Fund to launch soon: What is it?
Equities typically offer better returns in the long term than dent investments. So, the PFRDA has planned to introduce a plan that has more equity exposure till the time the NPS subscriber turns 45. After that, the equity exposure will reduce and the debt allocation will go up. Mohanty says, "In the Balanced Life Cycle Fund, the tapering of equity will start from 45 years of age and follow a different formula. This would help maximise the pension wealth in the long run while optimising the risk and return."Balanced Life Cycle Fund: How is it going to help the NPS subscribers?
The NPS auto choice option is suitable for those NPS subscribers who find it difficult to decide when and how much to invest in each asset class. As the equity exposure reduces each passing year, the NPS subscriber does not need to manage the allocation according to the risk appetite actively. Now the equity exposure in the Balanced Life Cycle Fund has been increased till the age of 45. So several young NPS customers will benefit from it. They will be able to build a bigger corpus as the returns from equities are often better than the debt investments. Further, it is yet to be announced the equity allocation will be reduced in the Balanced Life Cycle Fund.Who can opt for the Balanced Life Cycle Fund?
Both existing and new NPS subscribers can opt for Balanced Life Cycle Fund, says Mohanty. It is yet to be seen whether it will be a default option under the auto choice in NPS.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
This story originally appeared on: India Times - Author:Faqs of Insurances
