How to Choose the Best Pension Fund Manager For NPS
Rajesh Kumar Kar- May 2
- 9 min read
The Central Government of India launched the National Pension Scheme (NPS) for the public, private, and unorganized sectors. Anyone can opt to invest in this voluntary scheme at regular intervals. Upon retirement, investors can withdraw a specific lump payment, with the remaining amount paid as a monthly pension. The first step in investing in NPS is to choose the Best NPS Fund Manager based on your risk tolerance, investment horizon, and objectives. In this article, we will share some insights to choose the best one.
Table of Content
Types of Funds in NPS
Four main fund types are available under the NPS pension plan, each with a unique risk-return profile:
Equity Fund (E-Asset Class): Investing primarily in stocks, the Equity Fund (E-Asset Class) is a high-risk, high-reward investment strategy. Ideal for investors with a lengthy investment horizon and a high risk tolerance.
Company Debt Fund (C-Asset Class): This provides a moderately risky and return-oriented investment alternative by investing in company bonds and debentures. It is appropriate for investors looking for a steady income stream and stable investing climate.
Government Bonds Fund (G-Asset Class): This fund makes investments in government securities and provides a low-risk, highly safe, and comparatively low return on the national pension plan. This one is ideal for investors who are risk-cautious and seek steady earnings.
Alternative Investment Fund (A-Asset Class): This fund invests in commodities, real estate, and other alternative assets to diversify your portfolio. It is suitable for seasoned investors looking for diversification and maybe higher returns because of its variable risk and return potential.
Best Pension Fund Manager for NPS in India
The top NPS Fund Managers in India for both the public and private sectors are:
SBI Pension Funds Pvt. Ltd. (both government and non-government sectors)
LIC Pension Fund Ltd. (both government and non-government sectors)
UTI Retirement Solutions Ltd. (both public and private sectors)
The non-governmental sector's HDFC Pension Management Co. Ltd.
(Non-government sector) ICICI Prudential Pension Fund Management Co. Ltd.
(Non-government sector) Kotak Mahindra Pension Fund Ltd.
Birla Aditya (non-government sector) Sun Life Pension Management Ltd.
The non-governmental sector's Tata Pension Management Ltd.
(Non-government sector) Max Life Pension Fund Management Ltd.
The non-governmental sector's Axis Pension Fund Management Ltd.
NPS Fund Managers and Their Duties
Like a mutual fund manager, an NPS fund manager is a professional in finance. Pension money collected from diverse investors is invested in several assets by the fund manager. Government securities, corporate bonds, and stocks are the three asset types into which they are separated. Stated differently, it prudently distributes the pension funds that each investor contributes. Additionally, they evaluate the investments to determine whether they are performing well. In addition, the fund management receives payment for their services. This charge depends on the average number of assets they oversee. The NPS fund manager has to take care of the following things:
It pools investor funds to make investments across a range of asset classes to maximize returns at a manageable level of risk.
They have to invest the money pool by the rules set forth by the Investment Policy and Authority.
Assessing investment performance frequently to make sure the best returns get generated.
Factors to Consider When Choosing the Best Pension Fund Manager For NPS
Examining Your Financial Objectives: Your retirement objectives and investment schedule impact the NPS plan you select. If you begin investing early, you have more time for your assets to perform and yield rewards. The degree of projected returns and risk tolerance are also determined by financial objectives. You might expect better returns and take on less risk if your financial goals are more urgent.
Evaluation of Fund Performance: You must review the asset's historical performance before participating in an NPS scheme. Schemes with a track record of producing high returns are also more likely to do well in the future, even though prior fund success does not ensure high returns. A key component of market research is evaluating the fund manager's reputation and experience with the fund's performance, which aids investors in making wise choices.
Analysing the Fund Manager's Performance History: Fund managers are authorized by the Pension Fund Regulatory and Development Authority (PFRDA) to oversee fund investments in various securities. Fund managers use NPS to invest capital in several government securities, corporate bonds, and stocks. Verify fund managers' performance histories and make sure their investments align with your risk tolerance, investing time horizon, and financial objectives. Choosing the finest NPS scheme requires careful consideration of their reputation, experience, and historical performance.
Verifying Fund Management Fees: Depending on the fund manager's requirements, NPS demands several fees. These include transaction costs, processing, registration, yearly maintenance, etc. You must choose one with low fees because these charges might take a significant amount from your returns. To reduce the costs associated with your NPS investment, compare charges across several NPS plans. By doing that, you can increase your earnings and contribute to the growth of your retirement fund.
Examining the Asset Allocation Plan: Achieving your financial objectives requires using the appropriate asset allocation strategy. Above all, it would be beneficial if you selected a plan based on your age. For example, those under 40 may save for retirement more aggressively. As a result, they can invest more money in stocks that carry greater risk but yield higher profits. People in their mid-40s and beyond allocate high percentages of their funds to debt instruments. Additionally, you can allocate your cash to safer solutions to be cautious about the security of your money if you have a huge equity investment and your corpus is still little.
Assessing Tax Advantages: The tax savings that NPS investments offer are among their main advantages. According to the previous tax regime, Section 80 CCD (1) provides a tax deduction of up to Rs. 1.5 Lakh, while Section 80 CCD (1B) provides an extra deduction of Rs. 50,000. Nevertheless, only Tier I NPS accounts are eligible for these tax advantages. Although Tier II NPS accounts don't offer tax advantages, they provide greater flexibility about contributions and withdrawals. You must select an NPS account type according to your preferences because tax benefits impact your savings and corpus. Opt for a Tier II account if you require further freedom. If not, continue using a Tier I account to reduce your tax liabilities.
Assessing Withdrawal and Exit Options: The real payoff for long-term NPS investments occurs during superannuation. With a Tier I NPS account, you can put 40% of the corpus in an annuity and withdraw 60% as a lump when you retire. After retirement, you get a consistent monthly income based on this investment. Prior to maturity, review the withdrawal guidelines along with the departure possibilities. An unavoidable expense, such as a serious illness, a property purchase, a child's schooling or marriage, etc., may require funds. When choosing an NPS program, notice the flexibility in withdrawal possibilities.
Evaluating Accessibility and Customer Service: When choosing an NPS plan, it's also important to consider how simple it is to manage the account and how easily the NPS provider can reach customer assistance. Even though managing your NPS account is simple online, you may occasionally require support from an expert. The customer support centre of the NPS supplier should be very responsive and reachable via several communication methods in such situations.
Which is better: NPS active or auto?
It's time to determine your level of risk tolerance after determining which NPS fund manager is ideal for a given section. Selecting the auto-select NPS will be a fantastic choice if a subscriber considers themselves a low-risk taker. On the other hand, suppose you are prepared to take measured chances. After conducting a thorough market study, it suggests choosing the "active choice" to guarantee that you obtain the ideal risk-adjusted returns. In the former scenario, as you get closer to retirement age, the fund management automatically reduces the equity exposure in your portfolio. The asset mix is far more variable for active NPS subscribers, though, as they can allocate up to 75% of their contributions to equity assets. Likewise, there is a 5% cap on the amount allotted to alternative investment funds. Therefore, you can freely modify your contributions within the permitted range.
Conclusion
You may maximize your NPS portfolio to ensure a safe retirement by choosing your pension fund manager wisely and continuing to be involved with your investments. A crucial first step in guaranteeing a pleasant retirement is selecting the top NPS fund manager. A fund manager who is in line with your financial objectives can be chosen by carefully assessing performance histories, investing methods, fees, and customer service providers. To maximize the NPS, keep yourself updated and occasionally analyse your investment.
FAQ
Q1. What is NPS?
The federal government launched the National Pension Scheme, a voluntary retirement plan for workers in the public, private, and unorganized sectors. It encourages you to save well in advance of your retirement. A portion of the accumulated corpus may be withdrawn by investors at retirement, with the remaining portion being paid out as a monthly annuity.
Q2. Can I change my pension fund manager in NPS?
If an NPS member wants to switch their pension fund management, they can do so. This can be done several times for Tier II accounts and once a year for Tier I accounts.
Q3. What is the maximum equity exposure permissible in NPS?
The maximum equity exposure for the several subscribers is limited to 75% of the entire Active Choice option investment. The age of 50 is the beginning point for a progressive lowering in this limit.
Q4. How secure are my investments with the pension fund managers?
PFRDA regulates pension fund managers, who are subject to stringent investing regulations. Although market risks affect investments, the regulatory system protects investors' interests and guarantees transparency.
Q5. What are the fees linked with NPS fund managers?
NPS fund managers have the lowest fund management fees in the whole financial sector. The charges are usually a modest portion of the assets under management and governed by PFRDA.
Q6. Is NPS suitable for self-employed individuals?
NPS is a great retirement planning tool for independent contractors because of its flexibility, affordability, and possibility for market-linked returns.
Q7. How does the Auto Choice option work in NPS?
The asset allocation under the Auto Choice option is automatically modified according to the subscriber's age. As one approaches retirement, investment risk gets reduced because stock exposure declines with age.
Q8. Are the returns from NPS guaranteed?
The performance of the underlying assets determines returns on NPS investments, which are market-linked. Although returns are not assured, historical evidence indicates competitive returns over an extended period.
Q9. How do I choose the right asset allocation in NPS?
Think about your retirement objectives, investment horizon, and risk tolerance. While those nearing retirement could favour a more conservative combination with more bonds, younger investors might choose a greater equities exposure.
Q10. What tax benefits does NPS offer?
Tax deductions under Section 80C and an extra deduction under Section 80CCD(1B) up to ₹50,000 are available for NPS investment. A portion of the maturity amount is subject to taxes.
Q11. Can I have multiple fund managers in NPS?
No, NPS only allows one fund manager. It is possible to have distinct fund managers for Tier I and Tier II accounts.
Q12. How can you switch from a pension fund to another?
Through the Protean CRA website, any subscriber with an active NPS account may submit a request for online account management. After registering, you can log in with your login information. Next, pick an investment plan and fund manager based on your preferences. You can also use this facility in person at a Point of Presence (PoP) branch by submitting a written application. Select any plan or return to the default plan to meet your needs. Nevertheless, this service is only available once a year. Therefore, the investing gurus advise having a specific reason for switching before moving forward.
Q13. Which pension fund manager is best for NPS?
The first step in selecting the finest fund manager is to decide between active and auto selections. Next, examine the fund manager's portfolio over time. Finally, choose a good fund manager depending on your risk tolerance level.
Q14. Can a government employee choose a fund manager of their choice for NPS?
Indeed, NPS investors now have the freedom to select a fund manager that best suits their needs. Previously, the PFRDA would choose the fund managers on behalf of government sector employees under a default plan. They are now free to select investment plans and fund managers based on their personal preferences. Investors who work for the state government will require specific authorization to take advantage of this flexibility. With approval, clients can choose one of the three PFMs and an investment plan that best suits their financial objectives.
Q15. Which account type should I choose in NPS?
Tier I and Tier II are the two categories of NPS accounts. A Tier II account gives greater flexibility for contributions and withdrawals, whereas a Tier I account delivers higher returns and tax benefits. Your intended returns, tax advantages, ability to make contributions, and withdrawal requirements must be considered when selecting an account type.
Q16. Which NPS model is best?
The auto NPS model is the best Because seasoned fund managers supervise asset allocation based on their analysis and forecasts. Although you can distribute funds to your favoured assets using an Active NPS model, it might be an uncertain step because of a lack of expertise.
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