In active choice, the investor decides how much allocation he would like to have to different asset classes. This allocation remains constant until the investor decides to change it. Earlier, allocation to equities under the active choice option was capped at 50 per cent. NPS already offers 75 per cent equity allocation under the auto-choice option. It will now offer the same level of equity allocation under the active-choice option as well. “With equity doing better than debt, there is demand even for up to 100 per cent equity exposure. We will keep reviewing our position and will weigh risk against return before taking a decision,” says Contractor.
According to Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors since NPS is used for a long-term goal like retirement, allowing younger investors to have higher exposure to equities will give them a chance to earn higher returns. It will enable their NPS portfolio returns to beat inflation meaningfully. The higher interim volatility, according to him, does not matter since investors are unlikely to withdraw the money before 60 and hence suffer a loss. According to Tarun Birani, founder and chief executive officer, TBNG Capital Advisors, “Equities are the only asset class that can generate higher returns if held for a long period of time.
Considering the voluntary nature of the scheme, a more liberal allocation may attract more subscribers to it.” Experts suggest that as soon as the new norm is implemented, younger investors who have gone for the active choice option should consider hiking their equity allocation to 75 per cent. However, they should look at their overall portfolio asset allocation (including mutual funds, direct equity investments, etc) and ensure that hiking equity allocation in NPS will not make their overall portfolio too risky.