Balanced Life Cycle Fund In NPS: All You Need To Know
Previously, the equity portion would start decreasing from 35 years onwards, but under the balanced advantage fund it will start decreasing only from 45 years onwards
The Pension Fund Regulatory and Development Authority (PFRDA) has introduced the Balanced Life Cycle Fund, a fresh investment option within National Pension System (NPS). This fund aims to provide NPS subscribers with greater flexibility and enhanced growth potential by prioritizing equity investments during their prime working years.
“The new balanced lifecycle fund introduced under NPS is placed between aggressive and moderate lifecycle funds. In this new fund the equity exposure is gradually reduced from 50 per cent to 35 per cent with subscriber’s age so that they can reduce their exposure to equity before retirement age. We believe that this fund provides NPS subscribers an easy option to auto-balance their equity exposure with increase in their age," says Abhishek Kumar, Founder, SahajMoney, a financial planning firm.
How It Is Different
The balanced lifecycle fund thus permits subscribers to invest up to 50 per cent of their assets in equities until they reach 45 years of age. This is more generous than other lifecycle funds like the moderate lifecycle fund which start decreasing equity exposure at 35.
The general rule of thumb is that you need to reduce your equity exposure once you near retirement. For balanced lifecycle funds the shif from equity happens later. Even at the age of 45, one has 15 years left for retirement, so it could be a wise decision to reduce equity exposure after one reaches the age of 45.
“They have extended the period during which investors can hold equity from 35 to 45, allowing for a larger equity portion in their portfolio. Previously, the equity portion would start decreasing from 35 years onwards, but now it will start decreasing only from 45 years onwards,” says Anand K. Rathi, Co-Founder of MIRA Money, an investment management platform.
This change could result in a larger retirement fund for investors. “If you are a young investor who is comfortable with some volatility and aiming for a larger retirement fund, this could be a great option for you,” he adds
