It’s Good That NPS Isn’t As Liquid As Mutual Funds, Says Sriram Iyer

How has been the uptake of MSFs?

The last six months have been very promising. If you look at the contribution of MSF to the total number of subscribers added last year, it’s close to 400,000. As of March 2026, the contribution to the overall number was around 18-20 per cent.

Still, awareness about MSFs is low. As more people get to know about them, the adoption will accelerate. We are seeing a lot of interest in the corporate NPS segment. We see tremendous interest among youngsters as it offers huge flexibility vis-a-vis the common schemes.

What makes it stand out?

There are three defining features of MSF. First, it’s a multiple scheme framework, and you can create a portfolio based on your needs; and offer more flexibility.

Two, within MSFs, you have various asset allocation options. Out of the 19 MSF schemes available, 11 allow 100 per cent allocation to equity. Third, there is a much larger corpus available to you after 15 years or at superannuation.

The 15-year vesting period is meaningful. Say, if somebody aged 30 wants to retire at 45, it’s an ideal scheme for that individual. You contribute meaningful amounts over 15 years and get a reasonably large corpus at 45, provided you make the right kind of asset allocation choices. You can have 80 per cent of the corpus and the rest 20 per cent has to be used for buying annuity. You may also use 40 per cent to buy annuity.

Financial planning typically defines long term as more than 15 years, especially for retirement planning. At 45, an individual could use the corpus for, say, children’s education. Considering that, do MSFs dilute retirement goal planning?

It may happen in some cases, but I would like to clarify two things. One, the 15-year period is not only specific to MSFs, but also available in common schemes. To that extent, the risk of people exiting too early exists. But there are some guardrails.

For instance, in the case of corporate NPS, where there is employer contribution for salaried employees, the exit is dictated by the superannuation age. So, in corporate NPS, you will stay till you retire from that organisation at 58 or 60 years.

So, while that danger exists, it’s different for different folks. It doesn’t force you to get out after 15 years, and you can continue till 85 now.

Is there any headway on the decumulation products recently proposed by the Pension Fund Regulatory and Development Authority (PFRDA)?

This is a big focus area for PFRDA. There’s a committee to deliberate on the options. There needs to be a balance, as too many options could spur confusion.

As an industry, we share our feedback with PFRDA in terms of how subscribers are reacting to various changes. They, too, have their ear to the ground through seminars across Tier I, III and III cities. I think there will be some information about the decumulation schemes very soon.

You said a lot of young investors have joined MSF. How did they react to the recent market correction?

One of the metrics to measure the reaction to the recent market correction would be the number of subscribers getting added.

We haven’t seen any change in the velocity at which MSF adoption has progressed since its launch. There has been a little bit of a lull, maybe 10 per cent, but by and large the pace at which MSF adoption has been progressing has not really relented.

Second, if one is not interested in an MSF scheme, they can always move back to the common scheme. We haven’t seen any subscriber do that. There’s a sophisticated set of investors, who are looking at NPS as a 15-30-year journey.

Mutual fund investors, especially the mature ones, usually have a historical performance to look at. MSF schemes are new. What’s the benchmark for them?

The common schemes have been in existence at least for the seven legacy pension funds, including us, for 10-plus years now. So, there is some history of performance that the subscriber has and that becomes a benchmark.

The newly promoted ones are either promoted by asset management companies or companies of a similar profile. They (investors) know these entities possess the ability to navigate through uncertain times. I think whoever is invested is reasonably savvy.

PFRDA has taken some steps like expanding the scope of pension agents, increasing the commissions slightly and so on. What else needs to be done to push distribution?

PFRDA has acknowledged that you can have a fantastic product, but if there isn’t enough distribution muscle to back the product, it won’t go anywhere. I don’t think it’s fair to frown on commercial motivations from a distributor perspective. Also, the change is at the rate of 0.20 per cent per annum, which continues to be significantly lower than the other capital market products that are similar in nature. So, it has retained the low-cost fee structure, which continues to be a compelling benefit for the subscriber and is slightly more attractive for the distributor.

If you look at the lifetime value of NPS, people normally don’t exit; they may switch from one option to another. We don’t see premature withdrawal either, except a sliver. To that extent, NPS has stickiness, which is good for compounding, and that benefits distributors, too. In mutual funds, for instance, the impulses of an individual matter, but NPS doesn’t allow that. It’s good that NPS is not as liquid as, say, mutual funds, as it allows you to make double-digit returns, if you have the right asset allocation and the right fund manager.

nidhi@outlookindia.com