The PFRDA has introduced a standardized classification framework for all National Pension System schemes, effective August 2026. This move requires pension funds to categorize their offerings into five groups and adopt a uniform ‘Risk-o-meter’ to help subscribers compare products more easily. Funds must restructure or merge overlapping schemes within 45 days.
The Pension Fund Regulatory and Development Authority (PFRDA) has issued a new circular, effective August 28, 2026, which forces a major cleanup of how National Pension System (NPS) schemes are classified. For years, the lack of a standard naming and grouping convention made it difficult for subscribers to understand the risk levels of different pension products. The regulator is now changing this by enforcing a rigid structure that mimics the transparency standards seen in the mutual fund industry.
New Categorization and Equity Exposure
The PFRDA has divided all NPS investment options into five clear groups: Lifecycle-based schemes, Active Choice, NPS Sanchay, Regulation 4A schemes, and the Multiple Scheme Framework (MSF). The most significant change applies to MSF schemes, which must now be strictly grouped into five categories labeled A through E. This labeling is based entirely on how much of the fund is invested in equity.
Category A will house schemes with 80-100% equity exposure, representing the highest risk. At the other end, Category E will be restricted to funds with 0-10% equity, making them the safest options. By forcing funds to use this standardized lettering system, the regulator wants to ensure that a subscriber comparing schemes from different pension fund managers can easily see which one carries more stock market risk.
Transparency and Compliance Deadlines
Beyond just renaming funds, the PFRDA is mandating that all schemes display a 'Risk-o-meter'—a visual guide that shows the risk level of the investment. Platforms must also provide a standardized document called 'NPS Scheme Essentials' that clearly lists the investment objective, fees, and rules for exiting or closing the fund.
However, this overhaul comes with a strict timeline. Pension funds must comply with these new rules within 30 to 45 days. If a fund manager currently offers more than two schemes within the same category, they are required to merge or restructure them. This consolidation is expected to reduce the number of redundant or overlapping products that often confuse investors.
Potential Risks and Challenges
While this move is designed to help subscribers, it brings operational challenges for the industry. The 45-day deadline for merging funds and renaming them puts pressure on pension fund managers to complete the transition quickly. For subscribers, the process of restructuring might lead to temporary confusion as existing schemes change their names or are consolidated into new categories. Furthermore, the cost of implementing these new disclosure and documentation requirements could rise for fund managers, though this is expected to be offset by the long-term benefit of a more organized pension system. Government-sector NPS accounts are exempt from these specific changes and will continue to operate under their existing framework.