The Pension Fund Regulatory and Development Authority (PFRDA) has released a comprehensive Master Circular detailing the investment framework for NPS Tier-I and Tier-II accounts in the Non-Government Sector (NGS). Issued on 10 December 2025, the circular replaces the earlier Master Circular dated 28 March 2025 and takes effect immediately.

The Non-Government Sector (NGS) includes all NPS subscribers other than Central/State Government employees (default schemes), Corporate CG, NPS Lite and APY subscribers.

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A Fresh Consolidation of All Investment Rules

PFRDA has exercised its powers under the PFRDA Act, 2013 to consolidate and update all investment-related instructions, guidelines, clarifications and advisories issued over the years. The updated guidelines absorb the content of dozens of circulars previously issued between 2013 and 2025, ensuring continuity and eliminating ambiguity for Pension Funds and intermediaries.

The regulator clarified that actions taken under earlier circulars remain valid and unaffected.

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Key Features of the Updated Investment Framework

The circular provides a detailed investment rule-book for Pension Funds managing NPS assets in the NGS sector.

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1. Asset Class G – Government Securities

Investments include:

• Central and State Government securities
• Government-guaranteed securities, including fully serviced bonds issued by PSUs
• Dedicated Government Security mutual funds (up to 5% of AUM)

A cap of 10% applies to non-standard Government-guaranteed securities.

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2. Asset Class C – Corporate Bonds and Debt Instruments

A wide debt universe is permitted, including:

• Listed corporate bonds
• Rupee Bonds issued by IBRD, IFC and ADB
• Bank term deposits (subject to strict profitability and NPA conditions)
• Debt Mutual Funds (with duration limits)
• Municipal Bonds
• Infrastructure-related debt securities
• InvITs/REITs debt instruments
• CMBS/RMBS and ABS
• Basel III Additional Tier-I instruments

Key safeguards include:

• Minimum AA rating for most securities
• Additional limits for AIFs, InvITs and Tier-I bonds
• Exposure caps per issuer and per industry
• Requirement for thorough due diligence by Pension Funds

The circular also allows limited investment (up to 10%) in securities rated A or AA- under specific protective conditions such as credit default swaps.

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3. Asset Class E – Equity Investments

Equity exposure continues to follow a disciplined index-linked approach:

• Eligible stocks:
  • NIFTY 250 constituents, and
  • BSE 250 stocks not in NIFTY 250
• At least 90% of equity AUM must remain invested in the top 200 stocks of NIFTY 250
• Investment in equity mutual funds and ETFs capped at 5%
• IPO/FPO/OFS participation allowed under strict criteria
• Investment in REITs, equity-oriented AIFs and Gold/Silver ETFs capped at 5% of AUM

Pension Funds must rebalance portfolios within six months when NIFTY 250 composition changes.

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4. Short-Term Parking of Funds

To manage inflows, Pension Funds may temporarily invest in:

• Treasury Bills, CPs and Certificates of Deposit
• Short-duration mutual funds (Overnight, Liquid, Ultra-Short, Low Duration)
• Term Deposits of eligible banks
• Government securities via TREPS

Limits:

• 10% of AUM for Tier-I schemes
• 20% of AUM for Tier-II schemes
  (Exempted until a scheme reaches ₹5 crore AUM.)

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5. Additional Safeguards to Reduce Concentration Risks

Once scheme AUM crosses ₹5 crore:

• Equity exposure caps:
  • 5% of sponsor-group equity
  • 15% of non-sponsor-group equity
• Debt exposure caps:
  • 5% of net worth of sponsor group
  • 10% of net worth of non-sponsor group
• Industry exposure limit: 15% of AUM (Level-5 NIC classification)

Pension Funds must also disclose sponsor-group companies publicly.

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6. Operational Measures and Transparency Standards

The circular emphasises stronger governance:

• Due diligence remains mandatory beyond reliance on credit ratings
• Transfer of securities allowed only in exceptional cases, such as liquidity needs or corporate actions
• Brokerage ceiling for equity trades fixed at 0.03%, inclusive of all taxes
• Investments in mutual funds (except certain categories) to be excluded from AUM for computing investment management fees

NPS Trust will intensify oversight to ensure prudent fund management.

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7. Special Rules for Tier-II Tax Saver Scheme

For the Tier-II Tax Saver Scheme:

• Equity: 10–25%
• Debt: up to 90%
• Cash/Money Market: up to 20% (applicable after ₹5 crore AUM)

This scheme remains open only to Central Government employees.

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Circular Consolidates 31 Previous Instructions

Part IV of the circular lists 31 separate circulars and advisories, issued between 2013 and 2025, that have now been consolidated into this Master Circular.

This consolidation aims to provide Pension Funds with a single, authoritative reference document and improve ease of compliance.

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Conclusion

With this Master Circular, PFRDA has significantly streamlined the compliance landscape for NPS investments in the Non-Government Sector. For subscribers, the update promises enhanced transparency, stronger risk controls and more consistent fund management practices across Pension Funds.

View Original Circular: