Pension fund managers expect the National Pension System (NPS) to deliver stronger risk-adjusted returns following the Pension Fund Regulatory and Development Authority’s (PFRDA) decision to broaden the investment universe to include gold and silver exchange-traded funds (ETFs), equity-oriented alternative investment funds (AIFs) and Nifty 250 index stocks under defined limits.

In a revised master circular on investment guidelines, the regulator said that allocations to Sebi-regulated real estate investment trusts (REITs), Category I and II AIFs, and gold and silver ETFs will be capped at 5 per cent of a scheme’s assets under management. Exposure to any single AIF has been limited to 10 per cent of the fund’s corpus.

PFRDA has also opened the door for pension funds to invest in Nifty 250 index constituents, as well as BSE 250 companies that are not part of the Nifty 250 basket.

Kurian Jose, CEO of Tata Pension Management, said the expanded framework makes NPS portfolios “more contemporary” with diversification and return-enhancing avenues. “By allowing judicious, strictly capped exposures, the new framework introduces crucial diversification and access to specialised asset classes, enhancing the potential for risk-adjusted returns without compromising the system’s fundamental safety,” he said.

The seven fund managers handling NPS’ tier-I equity schemes have delivered five-year returns ranging from 14.25 per cent to 16.95 per cent. For the optional tier-II accounts, which allow unrestricted withdrawals, the five-year returns stand between 14.67 per cent and 16.92 per cent.

Amit Shetty, CEO of Embassy Office Parks REIT, said the wider investment choices will enable long-term pension capital to flow into productive Grade-A assets and support stronger retirement outcomes.

Shirish Godbole, CEO of Knowledge Realty Trust, added that greater pension-fund participation in REITs and InvITs strengthens the capital base for infrastructure and real estate.

Gopal Jain, managing partner at Gaja Capital and co-chair of the regulatory affairs committee at IVCA, said the changes reflect a clear, steady vision of how India’s pension architecture can drive long-term value creation.