Pension parking lot expanded to gold and silver ETFs, AIFs, Invits

PFRDA has overhauled NPS investment rules, allowing wider exposure to AIFs, REITs, InvITs, commodities, IPOs and a broader equity universe to boost returns and deepen diversification

Unlocking the flow of annual retirement savings worth about ₹1 trillion into a wider range of assets, including alternative investment funds (AIFs), equities, gold and silver exchange traded funds (ETFs), infrastructure investment trusts (Invits) and Basel-III tier-I bonds issued by state-owned shadow banks, the Pension Fund Regulatory and Development Authority (PFRDA) has significantly liberalised its investment guidelines for the National Pension System (NPS). 

Speaking to Business Standard, PFRDA Chairperson S Ramann said the opening up of fresh investment avenues for NPS assets is aimed at improving returns for its millions of members, which include government employees hired after January 1, 2004, and private citizens who have voluntarily signed up to build a nest-egg for their old age. 

“The context of these changes is to do with subscriber returns, as we had been getting feedback from our pension fund managers that enhancing the spectrum of assets they can invest in, would not only boost returns but also ensure more stable returns owing to diversification,” explained Ramann, who oversees India’s retirement savings worth ₹16.5 trillion. 

The new investment norms that kick in from January 1, 2026, raise the cap for NPS investments in the 201st to 250th equity constituents of the BSE-250 and NSE-250 indices to 10 per cent of a fund’s overall equity bets (capped at 25 per cent of total assets), from 2 per cent earlier.

 

Moreover, the pension regulator has allowed investments in initial public offers (IPOs) of firms if their full float market capitalisation (mcap) based on the lower band of issue price is equal to or higher than the mcap of the 250th firm in the NSE 250 Index. 

“There is too much of a herd mentality when it comes to picking stock investments, and so we have decided to expand the universe of stocks to invest in. The aim is to gradually provide more scope for fund managers to do active stock picking,” the PFRDA chief said. 

The regulator has also introduced commodities investments, starting with a 1 per cent cap on Sebi-regulated Gold and Silver ETFS, and eased conditions placed on debt instruments other than government securities, where fund managers are allowed to park 45 per cent of their corpus. 10 per cent of the debt portfolio no longer needs a ‘AA’ rating from two rating agencies, and there is some leeway for investments in infrastructure and affordable housing bonds issued by banks, even if they are rated lower than ‘AA’ (‘AA-’ to ‘A’ rated debt). 

Investment norms for the AIFs universe have been rationalised so that Real estate investment trusts (Reits), that are now treated as equities by the stock market regulator Sebi, are also treated in the same way by PFRDA. While AIF investments were permitted earlier, the structure was such that no investments qualified. 

“We have allowed 1 per cent of investments in AIF debt and equity investments to start with. Moreover, the requirement for sponsors of InvITs and Reits to have a ‘AA’ credit rating has been done away with,” Ramann told BS. 

The relaxations struck a chord with alternative investment managers which could see heightened interest from pension funds that operate with a longer horizon than most other savings pools. 

“This will reduce the impediment for investment, as sponsors or holding companies of Reits and InvITs were large institutional investors or global players that had no direct connection with the day to day management of these funds,” said an industry official. 

“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 supports enterprise growth, innovation, and the development of sectors critical to economic expansion,” said Ankur Jalan, CEO, Golden Growth Fund (GGF), a category II AIF about the PFRDA’s nod for investments in Category I and II AIFs. “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,” he remarked. 

“Pension funds’ participation in 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,” noted Shirish Godbole, CEO of Knowledge Realty Trust. 

“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,” said Amit Shetty, CEO of Embassy REIT. “For India’s REIT market, this is a strong endorsement of the transparent, regulated yield products that institutions and individuals increasingly rely on, and a positive milestone in the deepening of our capital markets,” he added. 

Earlier, Reits were part of alternative investments under the pension scheme’s asset allocation. With Reits now being classified under equity, they can be invested under the equity or equity linked allocation of the pension scheme, said an industry representative. 

Among other changes, pension funds can now invest two per cent of assets in Basel-III tier-I bonds issued by All India Financial Institutions (AIFIs) like Nabard, Sidbi, Exim Bank and NHB, as well as state-owned NBFCs like PFC, IRFC, IREDA, and HUDCO. Such investments were earlier restricted to bonds issued by scheduled commercial banks. 

Rethinking the retirement kitty 

* Up to 1% of pension fund assets can be invested in Sebi-regulated gold and silver ETFs

  * Up to 10% of equity bets (25% of assets) can be placed on BSE 250 or Nifty 250 Index stocks outside their top 200 stocks, from 2% earlier

  * 2% of assets can be parked in Basel-III Tier-I bonds issued by AIFIs and state-owned NBFCs

  * 10% of debt portfolio can be parked in debt rated AA by just one rating firm