How younger investors and rule changes are pushing NPS toward higher equity exposure

Rajesh Khandagale of KFin Technologies notes a shift to higher equity in NPS due to younger subscribers and structural changes, with new subscribers averaging 31-32 years old.

By Anshul

A combination of younger subscribers entering earlier and recent structural changes is driving a shift toward higher equity allocation in the National Pension System (NPS), according to Rajesh Khandagale, SVP – NPS at KFin Technologies.

Khandagale said investor behaviour is evolving alongside these changes, with subscribers treating NPS as a long-term investment vehicle.

Why equity allocations are increasing

The starting point of this shift is demographic. The average age of new NPS subscribers has declined to around 31–32 years from the late thirties earlier.

“Since the average joining age is decreasing, investors now have a longer investment horizon,” Khandagale said.

ALSO READ | ₹10,000 monthly SIP in a large & mid-cap fund has grown to nearly ₹2 crore in 21 years

He added that younger investors typically have a greater appetite for equity exposure, and “we are seeing higher allocations toward equity funds.”

This indicates that portfolio choices within NPS are reflecting longer-term growth strategies.

How lifecycle rules are enabling longer equity exposure

Changes in the lifecycle framework have reinforced this trend. Under the revised Balanced Life Cycle (BLC) approach, the reduction in equity exposure now begins later.

“Previously, the equity exposure gradually reduced from age 35 to 55. Under the revised framework, the tapering now begins later, around age 45,” Khandagale said.

This allows subscribers to remain invested in equities for a longer duration within the default allocation structure.

Flexibility in portfolio construction

Another key change is the flexibility available to investors in choosing asset allocation.

“Earlier, equity allocation was capped at 75%. Today, investors can choose schemes where the equity portion can be 100%,” he said, referring to the Multiple Scheme Framework (MSF).

This expanded limit enables subscribers to decide their equity exposure based on individual risk preference rather than fixed caps.

Khandagale also pointed to a distinct feature of NPS.

“Investors can receive tax benefits even while investing in equity through the scheme,” which is not typically available in other equity investment products.

ALSO READ | Helios Mutual Fund completes 2 years; flags potential multi-asset entry

Note To Readers

Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Readers should consult certified experts before making any investment decisions.