1. What is the National Pension System (NPS)?
The National Pension System (NPS) is a voluntary, defined contribution pension scheme launched by the Government of India and regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
It aims to help Indian citizens accumulate savings during their working life and receive pension income after retirement.
When you invest in NPS, your contributions are invested in a mix of equity, corporate debt, and government securities, managed by professional fund managers.
2. Types of NPS Accounts: Tier I and Tier II
NPS offers two types of accounts — Tier I and Tier II — each designed for a specific purpose.
| Feature | Tier I (Primary Account) | Tier II (Voluntary Account) |
| Purpose | Retirement Savings | Voluntary Investment |
| Minimum Contribution | ₹500 per month | ₹250 per month |
| Withdrawal | Locked till age 60 | Anytime withdrawal |
| Tax Benefits | Yes (80CCD sections) | No direct benefit |
| Annuity Compulsion | Yes | No |
| Recommended For | Long-term retirement | Flexible short-term savings |
Tip:
Keep Tier I for retirement planning and use Tier II for liquidity or short-term goals.
3. How to Open an NPS Account (Step-by-Step)
You can open an NPS account online or offline.
A. Online Registration (eNPS)
You can visit the official eNPS website:
👉 https://enps.nsdl.com
B. Offline Method
You can also open your account at any Point of Presence (PoP) — such as banks, post offices, or financial advisors.
4. NPS Investment Options: Asset Classes and Fund Choice
NPS lets you decide how your money is invested.
Asset Classes
| Class | Type | Risk | Description |
| E | Equity | High | Invests in stocks for higher long-term growth |
| C | Corporate Debt | Moderate | Invests in bonds issued by companies |
| G | Government Securities | Low | Safe, stable government bonds |
| A | Alternative Assets | Moderate-High | Real estate or infrastructure-linked instruments |
You can invest in two ways:
1️⃣ Active Choice
You decide the % allocation across E, C, G, and A (up to 75% equity till age 50).
2️⃣ Auto Choice (Lifecycle Fund)
Your exposure to equity reduces automatically with age — ideal for hands-off investors.
5. Who Manages Your NPS Money?
In NPS, your money is not invested directly into markets by the government.
Instead, it is managed by specialised institutions called Pension Fund Managers (PFMs).
These managers decide how to allocate your contributions across equity, corporate bonds, and government securities — aiming to grow your retirement corpus while balancing risk.
Each PFM follows its own investment philosophy, risk approach, and fund-management style.
Some focus on stability, some on aggressive growth, and others on consistency across cycles.
Understanding these differences helps you choose the manager whose approach aligns with your needs and comfort.
Below is a simple snapshot of the key characteristics of each Pension Fund Manager.
| Fund Manager | About Fund Manager |
|---|---|
| ABSL Pension Scheme | Aditya Birla Sun Life Pension Fund maintains a balanced performance across asset classes, with particularly strong returns in corporate debt and steady growth in government bonds. |
| Axis Pension Fund | A relatively newer entrant, Axis Pension Fund shows improving consistency across all plans, with a solid 1-year performance in both corporate debt and gilt categories. |
| DSP Pension Fund | DSP Pension Fund demonstrates stability with low volatility returns, performing better in short-term debt segments and maintaining prudent asset management. |
| HDFC Pension Fund | HDFC Pension Fund is the largest and most dominant NPS manager, leading in AUM and delivering consistently top-quartile returns across equity, corporate debt, and government bond plans. |
| ICICI Prudential Pension Fund | ICICI Prudential offers strong and stable multi-year returns, especially in equity and gilt plans, backed by a disciplined investment approach and broad portfolio diversification. |
| Kotak Pension Fund | Kotak Pension Fund provides competitive long-term performance, particularly strong in corporate debt and government securities, appealing to conservative investors. |
| LIC Pension Fund | LIC Pension Fund maintains a conservative, risk-averse style, providing steady performance in gilt and corporate debt categories, suitable for stability-oriented investors. |
| SBI Pension Fund | SBI Pension Fund, with one of the highest AUMs, combines strong long-term track record and balanced asset allocation, showing resilience in both equity and debt segments. |
| Tata Pension Management Pvt. Ltd. | Tata Pension Management, though smaller in AUM, has shown promising returns in its initial years, particularly in corporate debt, reflecting prudent early management. |
| UTI Pension Fund | UTI Pension Fund maintains a well-diversified performance profile, featuring consistency in equity and gilt categories, and a disciplined investment framework. |
6. Who Manages Your NPS Money?
| Type of Calculator | Purpose / What It Does | Example / Key Inputs | Estimated Outcome / Benefit |
| a. Retirement Corpus Calculator | Estimates how much your NPS investment can grow by the time you retire. | – Monthly Investment: ₹5,000- Investment Period: 25 years- Expected Return: 9% | Approx. ₹65 lakh retirement corpus at age 60 |
| b. Pension Calculator | Calculates how much monthly pension you may receive after retirement. | – Corpus at retirement: ₹65 lakh- 60% withdrawn tax-free- 40% (₹26 lakh) used to buy annuity | Approx. ₹20,000/month pension (depends on annuity rate) |
| c. Tax Benefit Calculator | Shows how much tax you can save by investing in NPS. | – ₹1.5 lakh under 80CCD(1) (part of 80C)- ₹50,000 extra under 80CCD(1B)– Employer’s contribution (up to 10% of salary) under 80CCD(2) | Save up to ₹62,400 in tax annually (for individuals in 30% slab) |
7. Tax Benefits of Investing in NPS
| Section | Who Can Claim | Deduction Limit | Remark |
| 80CCD(1) | Employee / Self-employed | ₹1.5 lakh | Part of 80C ceiling** |
| 80CCD(1B) | Individual | ₹50,000 | Additional deduction** |
| 80CCD(2) | Employer contribution | 14% of salary (no upper cap) | For salaried only – Under New Tax Regime |
** For Old Tax Regime
Tax at Exit:
- 60% withdrawal: Tax-free
- 20% withdrawal : Taxed
- 20% annuity: Taxable as per income slab
On maturity at 60 Years, 80% can be withdrawn.
8. Partial Withdrawal from NPS (National Pension System)
The National Pension System (NPS) primarily aims to help investors build a retirement corpus.
However, under certain conditions, you are allowed to partially withdraw funds from your NPS account before the age of 60 years or superannuation, without closing your account.
✅ Eligibility for Partial Withdrawal
| Condition | Requirement |
| Minimum holding period | You must have been an NPS subscriber for at least 3 years from the date of joining. |
| Account type | Partial withdrawal is allowed only from Tier I account. |
| Account status | Your NPS account must be active and compliant at the time of withdrawal. |
8a. Frequency and Limits of Partial Withdrawal
| Parameter | Details |
| Maximum number of withdrawals | Up to 3 times during your entire NPS tenure |
| Maximum withdrawal limit | 25% of your own contributions (excluding employer contributions) |
| Contribution basis | Only your own contributions between two withdrawals are considered |
| Account closure | Account remains active after partial withdrawal |
💡 Example:
If you have contributed ₹10 lakh in total, and your employer contributed ₹4 lakh,
you can withdraw 25% of ₹10 lakh = ₹2.5 lakh (employer’s share is excluded).
8b. Permitted Circumstances for Partial Withdrawal
You can withdraw funds only for specific purposes as permitted by PFRDA guidelines.
| Purpose / Allowed Use | Description / Applicable To |
| Higher Education | Education expenses for your children (including legally adopted child). |
| Marriage | Marriage expenses of your children (including legally adopted child). |
| Residential Property | Purchase or construction of a house or flat in your name or jointly with your legally wedded spouse. |
| Medical Treatment | For specified illnesses requiring hospitalization and treatment for yourself, spouse, children (including adopted), or dependent parents. |
| Disability or Incapacitation | To meet expenses arising out of a disability or incapacitation suffered by you. |
| Skill Development / Re-skilling | For skill enhancement or self-development courses as permitted by PFRDA. |
| Entrepreneurship / Start-up | For setting up your own venture or start-up as approved by PFRDA. |
8d. Specified Critical Illnesses Covered
Partial withdrawal for medical reasons can be made in case of the following life-threatening or serious conditions:
| 1. Cancer | 6. Coronary Artery Bypass Graft | 11. Coma |
| 2. Primary Pulmonary Arterial Hypertension | 7. Aorta Graft Surgery | 12. Total Blindness |
| 3. Kidney Failure (End-Stage Renal Failure) | 8. Heart Valve Surgery | 13. Paralysis |
| 4. Multiple Sclerosis | 9. Stroke | 14. Serious or Life-Threatening Accident |
| 5. Major Organ Transplant | 10. Myocardial Infarction (Heart Attack) | — |
⚕️ Note: The list above may be updated by PFRDA through circulars or notifications from time to time to include other critical illnesses of a similar nature.
9. Withdrawal Process
| Step | Process Details |
| 1. Application Submission | Submit a partial withdrawal request to your POP (Point of Presence), Nodal Office, or CRA (Central Recordkeeping Agency). |
| 2. Documentation | Attach supporting documents such as purpose proof (education invoice, medical certificate, property agreement, etc.). |
| 3. Verification | The nodal office or CRA verifies eligibility and documentation. |
| 4. Approval & Disbursement | Once approved, the eligible amount is directly credited to your registered bank account. |
🩹 In case of medical illness:
If the subscriber is unable to submit the request personally, any immediate family member can submit it on their behalf, along with relevant medical documents.
💡 Key Takeaways
- You can make up to three partial withdrawals during your NPS tenure.
- Only your contributions (not employer’s) are eligible for withdrawal.
- Withdrawals are permitted only for specific life events such as education, marriage, health emergencies, or home purchase.
- The process is simple, regulated, and flexible — designed to support genuine financial needs without disturbing your long-term retirement corpus.
9. NPS vs Other Retirement Options
| Feature | NPS | PPF | EPF | Mutual Fund (ELSS) |
|---|---|---|---|---|
| Returns | Market-linked | Fixed | Fixed | Market-linked |
| Lock-in | Till 60 | 15 yrs | Till retirement | 3 yrs |
| Tax Benefit | 80C + 80CCD(1B) | 80C | 80C | 80C |
| Liquidity | Moderate | Moderate | Low | High |
| Annuity / Pension | Yes | No | Yes | No |
10. Changes in NPS wef 1st Oct 2025:
Multiple Scheme Framework (MSF): The New Way NPS Subscribers Can Customise Their Investments (Effective 1 Oct 2025)
The Multiple Scheme Framework (MSF) is one of the most significant upgrades ever introduced to the National Pension System. Effective 1 October 2025, it allows NPS subscribers far greater flexibility, diversification, and control over how their retirement savings are invested.
Earlier, NPS followed a more restricted structure:
each subscriber could invest in only one scheme per asset class (E, C, G, A), all managed by a single Pension Fund Manager (PFM).
MSF changes this completely.
Under MSF, subscribers can now split their investments across multiple schemes, including multiple managers within the same asset class — all under the same PRAN.
10a. What Has Changed Under MSF? (Old vs New)
| Feature | Earlier (Old Structure) | Under MSF (New Structure) |
| Schemes Per Asset Class | Only 1 allowed | Multiple schemes allowed |
| Fund Manager Choice | One PFM across all assets | Mix-and-match multiple PFMs |
| Equity Allocation for Non-Govt Subscribers | Max 75% | Up to 100% in high-risk schemes |
| Portfolio Customisation | Limited | Highly personalised across schemes |
| Diversification Options | Narrow | Much broader across styles & managers |
| Applicability | Non-Govt subscribers only | Possible expansion later |
This transforms NPS from a single-scheme retirement product into something much closer to a multi-fund portfolio framework, similar to how mutual fund investors diversify across fund styles and managers.
10b. Why MSF Matters for Investors
✔ Better Diversification
✔ Flexibility to Mix Fund Manager Styles
✔ Higher Equity Allocation (Up to 100%)
✔ More Control, Personalisation & Transparency
10c. How MSF Works (Simple Explanation)
Under the new framework, you can divide your monthly NPS contribution among multiple PFMs and multiple schemes within asset classes:
Example contribution: ₹10,000/month
| Pension Fund | Asset Class | Allocation |
| HDFC Pension Fund | Equity (E) | 40% |
| ICICI Prudential Pension Fund | Equity (E) | 30% |
| SBI Pension Fund | Corporate Debt (C) | 20% |
| LIC Pension Fund | Government Securities (G) | 10% |
Earlier, this was impossible.
Today, it becomes a realistic portfolio that combines:
- Active style + stability
- Multiple risk levels
- Multiple fund manager strengths
—all under your single PRAN.
10d. Who Benefits the Most From MSF?
🔹 Younger investors (25–45 years)
Can take higher equity exposure, diversify across growth styles, and capture long-term compounding.
🔹 Conservative investors
Can split debt investments across PFMs to reduce interest-rate timing risk.
🔹 Investors dissatisfied with a single PFM
Can combine high performers across asset classes instead of being locked into one manager.
🔹 Hands-on investors
Can build portfolios similar to mutual fund combinations — now inside NPS.
10e. Should Every Investor Use MSF?
Not necessarily.
MSF is powerful, but whether to use it depends on your approach:
✔ Use MSF if you:
- want diversification within the same asset class
- prefer fund-manager combinations
- track performance periodically
- want to optimise returns over long horizons
✘ Avoid overusing MSF if you:
- prefer a simple, low-maintenance retirement structure
- don’t want many moving parts
- trust one fund manager’s long-term approach
A balanced approach is best: diversification without unnecessary complexity.
11. NPS for NRIs and OCI Holders
Yes, NRIs and OCI cardholders can invest in NPS, subject to FEMA rules.
They can open an NPS account using:
- Passport
- Overseas address proof
- Indian bank/NRE/NRO account
Key Notes:
- Contributions must be from Indian accounts
- Taxation depends on Indian income slabs
- Withdrawal proceeds are repatriable to NRE account
