The National Pension System (NPS) has expanded its investment universe, allowing pension fund managers to invest in gold and silver exchange-traded funds (ETFs) as well as Alternative Investment Funds (AIFs). The move is aimed at improving diversification and long-term risk-adjusted returns for retirement investors.
What Has Changed
Under the revised investment norms, NPS fund managers can now allocate a portion of their corpus to precious metals through ETFs and to AIFs, which include asset classes such as private equity, venture capital and infrastructure funds. Earlier, NPS investments were largely restricted to equities, government securities and corporate bonds.
How Investors Can Benefit
The inclusion of gold and silver ETFs provides a natural hedge against inflation, currency volatility and market uncertainty. Precious metals typically perform well during periods of economic stress, helping stabilise portfolio returns over the long term.
Exposure to AIFs, meanwhile, offers access to alternative assets that have the potential to generate higher returns compared to traditional investments, albeit with higher risk and longer investment horizons.
Improved Diversification
By widening the asset mix, NPS portfolios are expected to become more resilient across market cycles. Diversification across asset classes reduces dependence on equity market performance and helps smoothen returns for long-term retirement savers.
Things Investors Should Note
While the new investment options add flexibility, experts caution that exposure limits and risk controls will remain critical. AIF investments, in particular, may carry liquidity and valuation risks, making prudent allocation essential.
Outlook
The policy change is seen as a positive step towards modernising India’s retirement system. For investors, it enhances the potential of NPS as a comprehensive, long-term wealth creation and retirement planning tool.
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