The Pension Fund Regulatory Development Authority (PFRDA) has now stipulated that only half of an individual’s savings can go into equities even if he opts for a high-risk high-return investment. The auto (default) choice for persons who do not make an investment choice also caps the equity exposure at half of the savings.
A committee chaired by HDFC chairman Deepak Parekh that advised PFRDA in framing the investment norms had recommended that risk-hungry subscribers should have the freedom to invest all their savings in equities. It had also recommended a 65% equity exposure for auto choice. Investment in stocks is considered appropriate for long-term investments such as pension plans.
PFRDA chairman D Swarup told ET that the equity exposure limit was reduced based on the recommendations of the board of trustees of the NPS and the advice of the government. “This cap would be reviewed after a year. The Deepak Parekh panel had also recommended a review of the investment pattern after one year,” he said. Besides, the world over, pension plans do not allow 100% equity investments. In the US, equity exposure is allowed in the range of 50-70%."