How to choose a fund manager to make the most of your NPS account? (2024)

Pension funds registered under NPS

Under NPS, the subscriber is mandated to select one Pension Fund Manager (PFM) which is as follows as per the website of NPS Trust.

A. Pension Funds (PFs) for Government Sector

1. SBI Pension Funds Pvt. Ltd.

2. LIC Pension Fund Ltd.

3. UTI Retirement Solutions Ltd.

B. Pension Funds (PFs) for Other than Government Sector

1. SBI Pension Funds Pvt. Ltd.

2. LIC Pension Fund Ltd.

3. UTI Retirement Solutions Ltd.

4. HDFC Pension Management Co. Ltd.

5. ICICI Prudential Pension Fund Management Co. Ltd.

6. Kotak Mahindra Pension Fund Ltd.

7. Aditya Birla Sun Life Pension Management Ltd.

8. Tata Pension Management Ltd.

9. Max Life Pension Fund Management Ltd.

10. Axis Pension Fund Management Ltd.

Schemes Managed by Pension Funds under NPS

Central Government Scheme

State Government Scheme

Corporate CG Scheme

NPS Lite Scheme

Atal Pension Yojana

Scheme - E (Tier-I)

Scheme - E (Tier-II)

Scheme - C (Tier-I)

Scheme - C (Tier-II)

Scheme - G (Tier-I)

Scheme - G (Tier-II)

Scheme - A (Tier-I)

NPS - Tax Saver scheme (Tier II)

As per the website of NSDL, “In NPS, there are multiple PFMs, Investment options (Auto or Active) and four Asset Classes i.e. Equity, Corporate debt, Government Bonds and Alternative Investment Funds. The Subscriber first selects the PFM, and post selection of PFM, Subscriber has an option to select any one of the Investment Options."

How to choose a fund manager for NPS?

Nidhi Manchanda, Certified Financial Planner, Head of Training, Research & Development at Fintoo said “NPS fund managers invest your money in 4 types of assets which are equity, government bonds, corporate debt, and alternative investment funds. Every fund manager manages these 4 funds. It could happen that one fund manager’s equity fund is outperforming, and the other fund manager’s corporate debt fund is outperforming. However, you have to select only one fund manager who will manage all four asset classes for you."

She further said that “Thus, it is suggested to first decide what will be your asset allocation, which you can do by opting for either active choice or auto choice. As an investor, if your preference lies in equity, then you may choose a fund manager who has consistently outperformed in equity funds. Similarly, if you want to opt for higher debt exposure, then choose a fund manager with a better track record in debt funds."

“Please note that investors can gauge the performance of the fund based on the consistency of returns and a higher sharp ratio. It is further suggested that one should do an annual review of the performance of the NPS fund and switch to a better fund if your existing fund is significantly underperforming," said Nidhi Manchanda.

Should you review NPS fund managers while making your allocation strategy?

Mr. Shravan Shetty, Managing Director, Primus Partners said “Anyone who works in the private sector understands the importance of pension post-retirement. With the pension scheme expanding and managing over Rs.7.73 lakh crore of retirement assets of government and private sector employees, there is no doubt that choosing an efficient NPS fund manager who can thoroughly limit or eliminate the number of common mistakes is extremely important for the future. Before choosing a fund manager, it is imperative to finalise the category of funds based on the individual's ability to take risks. Then, depending on the choice of the allocation of categories - equity, government securities and corporate bonds, a user must reach out to a fund manager with experience and expertise in their chosen area of investment."

He further added that “Users who are primarily looking at principal protection should concentrate on government securities and corporate bonds, while those looking for higher returns must look at equity. Investors must also remember not to bet only on one category but to spread their investments across. However, comparing funds across categories will not be a fair analysis as returns are often different for each. Moreover, given that the information available on NPS is limited, it becomes even more critical to carefully choose from the available resources by analyzing each portfolio before entering into business. Reviewing fund managers in the industry must become a regular practice for users by evaluating the risk taken and the returns given."

Factors to consider while selecting an NPS fund manager

Utkarsh Sinha managing director Bexley advisors a boutique investment bank firm said “The criteria for selection of an NPS are similar to those of selecting a mutual fund: naturally, past performance would be a critical input (albeit not a predictor). But more critically, individuals would need to assess their own goals. Since NPS is designed for retirement planning, one would need to consider the duration of the investment - that is, how close one is to retirement. That would in turn dictate the ratio of fixed income (lower return rate) vs equity and other high-risk, high-return categories. Any investor would do well to assess their own risk appetite and investible duration in selecting funds that most closely meet their desired risk-reward preference."

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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Published: 09 Nov 2022, 08:52 PM IST