National Pension System: 5 lesser-known aspects of the new-look NPS

Non-government subscribers of the National Pension System (NPS) can now allocate up to 100% of their new investments to equity under the newly introduced Multiple Scheme Framework (MSF).

Under MSF, pension fund managers can offer schemes tailored to different investment goals and risk appetites, including an option that allows investors to allocate up to 100% in equity. While this MSF provision has the potential to give NPS a new look and meaning for retirement savings, it has also increased interest among investors.

We have covered various aspects of MSF in the following articles.

There are still several lesser-known aspects of the new-look NPS under MSF that you should know. This article lists five such aspects:

Lesser-known aspects of new-look NPS

1)You can invest in the 100% equity allocation scheme under MSF for only 15 years or until retirement, whichever is earlier. You cannot divert your existing contributions to schemes under MSF.

2)You can choose schemes offered by 11 pension fund managers. While the availability of multiple fund managers and schemes under MSF makes NPS more flexible, it can also create confusion for common investors about which manager or scheme to choose. In such cases, it may be better to seek advice from a professional retirement advisor.

3)Equity returns from NPS under the current setup may not match those of some well-diversified equity mutual fund schemes. However, past data available on the NPS Trust website hints that NPS equity schemes may comfortably beat inflation over the long term. NPS equity funds can invest in up to the top 200 stocks by market capitalisation. Most of them are currently heavily invested in large-cap stocks, with limited exposure to mid- and small-cap stocks.

4)NPS offers several other benefits that are not available to MF investors. For example, switching between pension fund managers and schemes under MSF is tax-free. On redemption from NPS under MSF, you will need to buy annuity plans only for 20% of your corpus. 60% of the corpus is tax-free, while the remaining 20% is taxable. Based on your requirements, you can increase the annuity amount from your total corpus.

5)The 15-year lock-in feature of NPS schemes under MSF can help in planning for long-term goals like retirement.