The National Pension System (NPS) has two distinct structures: the traditional common scheme and the newer Multiple Scheme Framework (MSF). The investment process in the common NPS scheme is simple and uniform for every investor.
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Interest in the National Pension System (NPS) is growing rapidly. Especially after recent major changes, the scheme has become more attractive than ever. If you’re planning to start investing in NPS, Moneycontrol is sharing some important facts about it. This will help you understand this retirement scheme better.
Common Scheme and MSF: Two Options Available
The National Pension System (NPS) has two different structures. The first is the traditional Common Scheme and the second is the new Multiple Scheme Framework (MSF). The investment process in the Common NPS scheme is simple and uniform for every investor. Subscribers can select only one scheme per tier and decide on the investment method. This can be done in two ways.
Difference between Active Choice and Auto Choice
Under Active Choice, investors can decide how much money they want to invest in equities (shares), corporate bonds, and government securities (such as government bonds). This decision depends on their risk tolerance. Under Auto Choice, investment allocation is based on pre-determined life-cycle options, including Life Cycle 25, Life Cycle 50, or Life Cycle 75. This means that when an investor is younger, more of their money goes into equities. As age increases, the allocation to equities decreases.
Benefits of a Balanced Life Cycle
Investors also have the option of investing in a balanced life-cycle fund and investing the entire amount in government securities. This option is suitable for investors who are completely risk-averse. Pranay Ranjan Dwivedi, MD and CEO of SBI Pension Fund, said, “Since this structure is fixed and there are not many options, it is ideal for investors who want a long-term retirement plan without much change.” The common scheme has a 75% equity allocation limit. This limit decreases as the investor ages.
Investor-Customized Schemes under MSF
MSF allows pension funds to offer different schemes for different subscribers. For example, pension funds can offer different schemes for women, gig workers, self-employed, and other investors, depending on the investor’s profile. Dwivedi said, “Previously, such a variety of schemes was not available under the common scheme. MSF offers multiple schemes under one PRAN.”
16 Options Available Under MSF
There are approximately 16 schemes available under MSF. This gives investors multiple investment options under a single PRAN. Aditya Birla Sun Life Pension offers Secure Retirement Equity Fund and Secure Future. Axis Pension Fund offers Golden Years Fund-Growth. DSP Pension Fund offers Long Term Equity Fund. These are just examples. Other funds also offer similar schemes.
