NPS: How you can choose fund manager to get maximum returns

The National Pension System (NPS) serves as one of the most popular options for retirement planning. One can ensure financial security after retirement if they choose to invest in NPS as they provide market-generated returns as well as tax benefits.  

However, not many know how to maximise returns on the NPS investment and it could be a daunting task if you are starting to invest in the pension scheme for the first time. Choosing an efficient fund manager can help in acquiring maximum returns.  

What is the National Pension System (NPS)?

The NPS refers to a voluntary contribution pension system that focuses on providing pensions after retirement via market-generated returns. Young people are encouraged to be a part of the NPS to ensure financial security after retirement and anyone aged between 18 and 70 years can open an NPS account. After maturity, the investors can draw a portion of the corpus fund (60 per cent) as lump sum and choose an annuity option for the remaining 40 per cent fund.

As of July 2023, the government backed scheme managed assets worth Rs 9.8 lakh crore and by the end of this fiscal it is expected to cross Rs 11 lakh crore, according to the Pension Fund Regulatory and Development Authority (PFRDA), which manages NPS.  

How to choose fund managers for your NPS account?

You can maximise your returns on NPS investment based on selection of the right pension fund managers (PFMs), investment options and allocation of assets and investment tenure. Currently, there are 10 NPS fund managers to choose from and investors are allowed to change their fund managers once in a financial year. The PFRDA allows the investors to diversify their investments across three fund managers.

Some of the preferred PFMs registered with PFRDA are Aditya Birla Sun Life Pension Management, HDFC Pension Management, ICICI Prudential Pension Fund Management, Kotak Mahindra Pension Fund, LIC Pension Fund, SBI Pension Fund and UTI Retirement Solutions, among others.

In order to choose the best fund managers to maximise returns it’s advisable to go through meticulous planning.

1. You need to first ascertain whether you want an active or auto mode of management. In case you have opted for over 50 per cent equity exposure, it's suggested that you go for an active mode of management.

2. Then choose the fund manager after assessing various parameters. You need to take a glance at the fund performance till date to learn how the fund has performed under the fund manager. In case you possess a higher debt exposure, consider looking at the debt funds under the fund manager's management. On the other hand, check the performance of equity funds if your equity exposure is high.

3. Review the rolling returns and understand how the fund has performed. Therefore, review it from time to time to assess the fund's performance and to ascertain if it's at par with other funds in that category.

4. Also, it's important to understand the portfolio and positioning before choosing an NPS fund manager.

5.  The investors should note that under PFRDA rules, different pension fund managers can’t be chosen for Tier 1 and Tier 2 accounts. As per the existing rules, the subscribers are not permitted to choose different fund managers for different schemes within the same tier.

However, if you're not satisfied with returns provided by your fund manager then you can consider switching as well.