The Pension Fund Regulatory and Development Authority (PFRDA) has expanded the investment options available to National Pension System (NPS) funds. A new
circular now allows Pension Funds to include gold and silver ETFs, REITs, InvITs, AIFs, municipal bonds, and other instruments, while setting clear limits to maintain portfolio stability. These changes affect both the Government Sector (GS) and Non-Government Sector (NGS) schemes, covering central and state employees as well as retail and HNI subscribers. For the first time, gold and silver ETFs regulated by SEBI are officially permitted in NPS portfolios. For NGS subscribers, these precious metals fall under Asset Class E, alongside REIT units and equity-focused AIFs, with a combined cap of 5 per cent of the equity allocation. Government Sector schemes face tighter limits: gold and silver each have a 1 per cent cap on total assets. The circular confirms that Pension Funds can charge investment management fees on these ETFs, giving clarity on costs and allowing smoother portfolio planning. Clear Rules For AIFs And Real Estate Funds The PFRDA also formalised guidelines for investing in Alternative Investment Funds (AIFs). Only Category I and II AIFs with a minimum corpus of Rs 100 crore are eligible, and no fund can exceed 10 per cent of its total size in NPS portfolios. Debt-oriented AIFs are grouped with InvIT debt and Basel III Tier I bonds, capped at 5 per cent of the debt allocation, while equity-oriented AIFs share a 5 per cent limit with gold, silver, and REIT units. REIT and InvIT investments are strictly rated, AA minimum for NGS and AAA for GS schemes, and combined exposure cannot exceed 3 per cent of total AUM, ensuring pension money goes into stable assets. Other Diversification Opportunities PFRDA also approved NPS investments in municipal bonds, Government of India debt ETFs, and Basel III Additional Tier I bonds. Municipal bonds require a AAA rating to qualify, while debt ETFs are capped at 5 per cent of debt allocation, providing liquidity and risk distribution. AT1 bonds are tightly restricted, with total exposure limited to 5 per cent of AUM, and no single issuer exceeding 20 per cent of issued bonds. Overall, the regulator has increased the total asset allocation ceiling from 140 per cent to 150 per cent, allowing more flexibility for portfolio management while maintaining strict due diligence requirements.
