NPS fund manager not delivering expected returns? Know when and how to switch

New Delhi: he National Pension System is an investment option for people looking forward to accumulate corpus for the period after retirement. Before investing in the scheme, one must understand that the returns on fund in the NPS account is market-linked unlike investment tools with interest rates fixed by the banks. Therefore, the returns may vary from one year to another, sometimes leaving the subscriber unsatisfied.

Thus, the Pension Fund Regulatory and Development Authority provides them a window to switch from one fund to another.

NPS is a government-regulated scheme which aims to provide financial security to employees post-retirement by taking out a small portion of their monthly salary and contributing it to the pension fund.

NPS pension fund managers and how they generate returns

The Pension Fund Manager manages the money and puts it into government securities, corporate bonds, equities, and alternative assets, and based on their performance, the NPS account gains returns.

A fund which performs well for a few years is not guaranteed to give better returns in the future. Similarly, an underperforming PF may get higher returns in the coming years. Therefore, subscribers must not make the decision in haste.

A PFRDA-licensed Pension Fund Manager invests the subscriber's money across asset classes based on the investment option and type of fund.

How often can you switch NPS pension fund manager?

Subscribers who are not satisfied with their returns over the years may want to change the fund manager. Though NPS has the provision to do that, there is a limit on the number of times the Pension Fund can be switched.

The All Citizen Model and the Corporate Model allow the NPS subscriber to change the Pension Fund once in a financial year. Switching from one manager to another does not affect the corpus in your account. The retirement corpus accumulated till date will remain in the account.

What to consider before switching NPS fund manager?

Consistency should be the driving force while deciding to switch the pension funds. Instead of chasing short-term gains, the subscriber must value the long-term performance of the fund manager. Instead of making instant choices, the returns should be assessed throughout the time to avoid making the wrong choice.

The corpus in the NPS account is meant to serve the post-retirement life and thus is a long-term investment. The subscriber should keep a check on the performance but should not decide to change the fund manager for poor performance in a year. Since there is a long time pending till retirement, the outcome may reverse.

Also, other factors such as asset allocation and time left to retire may influence the returns and thus play a part in making the choice of the PFM. Those Pension Funds that underperform consistently can be replaced.

How asset allocation affects NPS returns

The returns are also governed by asset allocation and how you invest the money in assets: Active Choice and Auto Choice. Under Auto Choice, the asset mix shifts automatically as time passes, whereas Active Choice lets you decide the percentage of money that goes into different asset classes.

Also, the asset mix must suit your age and perform favorably based on the time left for retirement.

How to switch NPS pension fund manager?

The Subscriber can switch the PFM by logging into their NPS account or offline through the Point of Presence (PoP).