Whalesbook
Understanding NPS Fund Management
National Pension System (NPS) offers market-linked retirement savings with significant tax advantages. The system allows subscribers to invest across three primary asset classes: equities (Scheme E), corporate bonds (Scheme C), and government securities (Scheme G). Managing these investments are ten accredited pension fund managers overseen by the Pension Fund Regulatory and Development Authority (PFRDA).
Performance Across Asset Classes
Analysis up to January 17 reveals varied fund manager performance. In Scheme E, focusing on equities, Kotak, HDFC, ICICI, and UTI have shown strong long-term returns, while Tata excels in shorter horizons. SBI's pension fund has consistently delivered lower returns. Scheme C, investing in corporate bonds, sees HDFC leading in consistent returns, with Aditya Birla topping seven-year performance. Most Scheme C funds offer returns comparable to but higher than Scheme G over shorter periods. Scheme E generally provides superior long-term returns compared to C and G.
Scheme G Performance and Risk
For Scheme G, which invests in government securities, Aditya Birla's fund has demonstrated consistent returns across one, three, and five-year tenures. LIC's pension fund has shown strong performance for longer investment terms. These schemes carry a low risk profile.
Investment Choices: Auto vs. Active
NPS subscribers can opt for two investment strategies: Auto Choice and Active Choice. Auto Choice employs a life-cycle approach, automatically adjusting asset allocation based on age, becoming more conservative as retirement nears. Active Choice offers greater flexibility, allowing subscribers to manually allocate contributions across different schemes, though equity investment is capped at 75% and alternative assets at 5%.
The Multiple Scheme Framework
Effective October 1, 2025, NPS introduced the Multiple Scheme Framework (MSF). This significant upgrade permits individuals to invest up to 100% of their NPS contributions in equities, a substantial increase from the previous 75% limit. MSF also allows Pension Fund Managers (PFMs) to offer multiple scheme variations (e.g., aggressive, balanced) within each asset class. This empowers subscribers with enhanced choice and control over their retirement investments. Investors must ensure their chosen allocation aligns with their risk appetite and long-term financial objectives.