The markets are full of ironies. At a time when a massive fall in market indices is adversely impacting the investors' pension fund, PFRDA (Pension Fund Regulatory and Development Authority) is set to remove the 75 percent cap on equity in NPS (National Pension System) Tier II, and EPFO (Employees’ Provident Fund Organisation) is geared to raise the equity investment to 25 percent from the current 15 percent.
Not to mention that there must be several retirees who would be indignant to witness their retirement savings declining by a large proportion in 2022.
The market indices have lost big in the past eight months with Nifty50 falling 15 percent from its 52-week high, and BSE Sensex declining 14 percent since October 2021 — the overall decline in portfolio for any investors with a large exposure to equity would be nothing less than substantive.
Often times, financial advisors tell investors to go aggressive on equity to accumulate large amount in retirement saving. Although investors have lost a lot of money in their retirement fund — the fundamentals of investment are still the same.
There are two key tips which investors must not abandon, regardless of the market cycle. First, investors are not supposed to allocate a high proportion to equity while advancing towards the old age. Second, they should start withdrawing money after they attain their financial goal.
Amol Joshi, Founder of PlanRupee Investment Services says that one should not become too aggressive on equity for anything, be it retirement fund or anything else.
“You should invest heavily in equity only when you have anywhere between 5 to 10 years. But if an investor is already around the age of 57-58, then they should not rely too much on equity,” says Mr Joshi.
Deepesh Raghaw, Founder of PersonalFinancePlan also echoes the same sentiments. “Your action should be determined by how far you are from retirement. Portfolio should be aggressive especially when you are in your late 20s or early 30s. When someone is in 50s or 60s, portfolio should be conservative. The market fall will be a reality check for a lot of people. Last two years were good till the end of last year,” says Mr Raghaw.
While talking about the market’s bull run, Mr Raghaw says: “When markets are going up and sustain for longer than a year, the perception of risk goes down. People think they won’t go wrong on equity but there is no guarantee. Investors think that they are here for a long-term and overlook the fact that for everybody, long term investment is the series of short-term investments. So, if short term is not good, they will not complete the journey, and will quit mid-way.”
Loss of portfolio
Even in the backdrop of the current market fall, all is not lost. Amol Joshi from PlanRupee explains this with the help of an illustration: “At the age of 59, if the market fall is 20 percent, then the corpus of ₹1 crore becomes ₹80 lakh. But you should keep it in mind that the corpus is meant for the next 15 to 20 years.”
“Ideally, a retiree should go for an SWP (Systematic Withdrawal Plan) at the rate of 3-4 percent per annum in line with their monthly expenses. They shouldn’t resort to a knee-jerk reaction just because of a considerable fall in the market,” elucidates Mr Joshi.
Returns on NPS Scheme- E (Tier II)
| Pension Fund manager | 3 months | 6 months | 1 year |
| SBI PFM | -1.23% | -2.45% | 6.62% |
| LIC PFM | -0.60% | -1.16% | 8.38% |
| UTI PFM | -1.05% | -2.34% | 5.78% |
| ICICI PFM | -1.81% | -3.21% | 6.41% |
| Kotak PFM | -2.12% | -2.00% | 7.11% |
| HDFC PFM | -1.25% | -2.46% | 6.62% |
| Birla PFM | -0.47% | -1.57% | 7.33% |
(Source: NPS Trust)
In another news, National Pension System (NPS) recently announced that it is available to address the investors’ queries on WhatsApp. One can connect with them on 918588852130.