The Pension Fund Regulatory and Development Authority (PFRDA) has widened the investment options for pension funds, giving them the opportunity to make higher returns and also spread their risk. This step, which is described in a master circular. It is a big move for the Indian pension market as it allows pension funds to invest in a variety of new instruments.
Pension funds, according to the new rules, may invest up to one-fourth of their total corpus in the stocks of companies that are part of the NIFTY 250 Index. The objective behind this move is to give funds access to a broader equity universe while keeping overall risk relatively low. In addition, pension funds can now invest in gold and silver-tracking exchange-traded funds (ETFs), offering portfolios a new layer of commodities-linked diversification.
If you have an NPS plan in your portfolio, it will now look quite different—stronger and far more diversified. The latest regulations allow NPS equity funds to invest in gold and silver ETFs, REITs, equity AIFs, and even IPOs. This marks one of the most significant expansions of the investment horizon in years, with the potential to substantially enhance the long-term growth of your retirement savings.
The regulator, however, has enforced some governance restrictions to avert conflicts of interests. For example, the AIFs sponsors should not be the promoters of the pension fund or members of its promoter group. The pension fund should not be managed by an investment manager who is directly or indirectly controlled by the pension fund.
Industry experts have welcomed these developments, noting that they create new avenues for long-term capital allocation and retirement wealth creation.
Amit Shetty, CEO of Embassy Office Parks REIT, emphasized the potential impact on both pensioners and the real estate market: “By widening investment choices for NPS subscribers to include high-quality debt, equity, infrastructure and real estate–linked instruments like REITs, the move will help channel long-term pension capital into productive Grade-A assets and support better retirement outcomes for millions of Indians.”
Shirish Godbole, CEO of Knowledge Realty Trust (KRT), highlighted the broader significance for capital markets and infrastructure development. “Pension-fund participation in Indian REITs and InvITs strengthens the capital base for infrastructure and real estate, while advancing India’s ambition to build deeper and more efficient capital markets. Their patient capital enhances yield stability and enables sustained, high-quality asset creation,” he said.
The updated investment guidelines are also seen as a continuation of India’s effort to integrate private markets into its pension framework. Gopal Jain, managing partner at Gaja Capital and Co-Chair of the Regulatory Affairs Committee at IVCA, observed: “The recent developments from PFRDA reflect a clear and steady vision for how India’s pension architecture can support long-term value creation. The announcement of an NPS fund-of-funds marked a bold step towards giving retirement capital a structured, well-governed pathway into private markets. The updated Master Circulars build on that momentum by bringing clarity and consistency to the framework through which pension funds operate.”
Ankur Jalan, CEO, Golden Growth Fund (GGF), a category II Alternative Investment Fund (AIF), believes, “Allowing pension funds to invest in Category I&II AIFs marks a significant evolution in India’s long-term capital strategy. This policy change opens the door for deeper and more meaningful participation in alternative assets, enabling the flow of stable capital into high-growth sectors. It also boosts diversification for pension portfolios and support enterprise growth, innovation, and the development of sectors critical to economic expansion. Overall, this move strengthens India’s investment landscape by balancing risk, widening access to high-quality opportunities, and fostering sustainable, broad-based growth across the alternative investment spectrum.”
With these new investment options opened up, PFRDA is seeking to deliver the best possible returns to NPS account holders while still maintaining a sensible risk approach. The ability of pension funds to invest in equity, commodity-linked, infrastructure, and real estate instruments helps them to diversify their portfolio in a very efficient manner and thus they won’t be overly dependent on the debt side of the market. Moreover, there are regulatory safeguards to ensure that there is transparency, accountability, and governance, thus the possibility for conflicts of interest is very small.
Market experts are quite confident that this approach not only improves retirement outcomes but also contributes to the strengthening of India’s financial ecosystem on a broader level. Long-term, patient capital funded projects in infrastructure and real estate will, therefore, have a positive effect on the pace of high-quality project development as well as on the deepening of India’s capital markets. Specialists believe that the changes will eventually be of advantage to pension account holders as they will have more secure and diversified investment options for their retirement savings.
By implementing these provisions, PFRDA is also showing that it is serious about the need for India’s pension system to be in line with global best practices and thus ensure that retirement monies will be run in a manner that is not only efficient and safe but also capable of producing long-term value.
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