AIFs in NPS: Inflation Hedge or Illiquidity Trap? Experts Weigh In on Pension Risks

• NPS Tier 1 subscribers can allocate up to 5% of their portfolio to Asset Class A, including AIFs, CMBS, MBS, REITs, and InvITs.
• Experts caution that Category I & II AIFs, while structured, are not "safe" for pension money due to long lock-ins, limited liquidity, and non-daily valuations.
• Liquidity risk is a major concern for pension funds, as capital can become stuck, disrupting long-term financial planning.
• Limited, disciplined AIF exposure can help NPS beat inflation over 20-30 years by complementing traditional equity and debt investments.
• Phanisekhar Ponangi of MavenArk Asset Managers notes alternatives can drive growth, but regulators impose caps to manage risks like illiquidity and valuation complexity.

Why It Matters: AIFs in NPS offer inflation-beating potential but demand careful, capped allocation due to liquidity risks.