Young investors favour 100% equity NPS: HDFC PF CEO

The National Pension System (NPS) has undergone several changes in the past year, with some modifications intended to simplify the retirement scheme for lay investors. However, these changes have generally been positive for the industry. In 2018, the Pension Fund Regulatory and Development Authority (PFRDA) Chairman, Sivasubramanian Ramann, took charge, and he has been encouraging the industry to focus on the non-government sector.

This has resulted in a significant expansion of the target customer segment, including gig workers and platform employees.

Corporate subscribers have shown a sharp growth in NPS uptake, with the tax benefit being a major driver. NPS benefits from the tax exemption available to employers' contributions, which has become more appealing as many people switch to the new tax regime. Mutual fund investors have access to registered independent advisors, but in the case of NPS, subscribers must rely on the Point of Presence (POP) community for investment advice.

Investors' behavior and preferences have evolved, with younger investors (25-35 years old) showing a strong interest in 100% equity schemes. Over 60-70% of the money in NPS is allocated to these funds. Government employees, whose choices are pre-determined, contribute to NPS by default, while non-government employees have a voluntary participation.

The age profile of NPS subscribers is also different, with younger companies having an average age of 28-29 years. Technological advancements, such as AI-led communication, have been helpful in conveying the importance of retirement planning to younger employees.

Despite the recent subdued stock market performance, NPS subscribers have not shown a significant reaction, as the equity component remains the key attraction. Contributions to NPS are pre-tax, similar to EPF, making it less likely for subscribers to stop contributing. The fees for NPS intermediaries remain lower than those for mutual funds and insurance, but the objective of NPS is to build a substantial corpus over the long term, making cost leakages a concern.