NPS: What are the limits to invest in equity in Tier I and Tier II accounts?

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If you want to save a handsome corpus till your retirement, you can opt for the National Pension System (NPS). It not only assured to give corpus at the time of retirement, it helps in wealth creation by investing in equity. 

Within the NPS, subscribers can invest in two forms of accounts: Tier I and Tier II. While Tier I is the permanent account, Tier II is optional one.

Tier I is the permanent retirement account into which the regular contributions made by the subscriber and their employer are credited and invested as per the scheme/ fund manager. Maximum allocation to equity is 75 percent. 

Minimum contribution to open a Tier I account is ₹500 and minimum per year is ₹1,000.

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Tier-II is a voluntary/ optional withdrawal account which is allowed only when you have an active Tier I account. The withdrawals are permitted from this account whenever you need. Maximum allocation to equity is 100 percent in Tier-II account.

Minimum contribution to open Tier II is ₹250 and there is no restriction on minimum contribution per year. And importantly, you can switch anytime to Tier-I.

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There are four asset classes: equity, corporate debt, government bonds and alternative investment funds which include instruments such as CMBS, MBS, REITs, AIFs, InVits etc.

Corporate debt and government bonds give fixed income to investors, equity enables wealth creation to happen. But it does not mean that investors can, or should, invest their entire contribution to equity. 

Thereby, some thresholds are introduced in these categories. For instance,