Government employees contributing to the National Pension System (NPS) will be allowed to invest a bigger slice of their retirement savings in equities and choose their own pension fund managers. The reform, to be initiated almost a decade after the launch of NPS, can infuse about Rs16,000 crore into India's stock markets.
An employee contributes 10% of the basic salary and the government makes a matching contribution under the NPS. Its investment in equities has been capped at 15% till now, because it has been following the asset allocation rule of the Employees Provident Fund Organisation ( EPFO) that allows to invest up to 15% of its corpus in equities. EPF trustees, however, have chosen to invest nothing at all in equities, thereby depriving India's stock markets the benefit a large pool of long-term savings. The NPS has fixed a higher limit of 50% in equities for voluntary, non-government subscribers. Moreover, only public sector fund managers can manage civil servants' funds now.
Pension Fund Development and Regulatory Authority (PFRDA) had proposed giving government employees the investment choices enjoyed by other individual investors in the NPS and also allowing them to choose their own fund managers.
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