PFRDA Announces Big Update Regarding NPS Tier I: Check Details

The Pension Fund Regulatory and Development Authority (PFRDA) has announced, in a recent notification, the merger of Scheme A (Alternative Investment Fund) with Tier I with Scheme C (Corporate Bonds) and Scheme E (Equity). The notification dated December 13, 2025, is an important update for NPS Tier I subscribers. According to the issued update, “This step is intended to provide a more stable, efficient, and rewarding investment experience for subscribers.”

Under NPS Tier I, subscribers can invest in four asset categories, say schemes. These are: Scheme E, Scheme C, Scheme G (Government Securities), and Scheme A (Alternative Investment Funds - AIF). Under the alternative investment funds (AIFs), investment is allowed in start-up funds, infrastructure funds, SME funds, venture capital funds, and social venture capital funds.

Why Has Scheme A Been Merged With Scheme C and E?

PFRDA gives two reasons to merge the scheme.

• It says, “Scheme A had a relatively small corpus and limited investment avenues. Post-merger, your contributions will be part of larger and more diversified portfolios under Schemes C and E, helping reduce concentration risk and enhance stability.”

• The other reason it gives is that the larger schemes offer more flexibility, portfolio management efficiency, and consistent return and balance between risk and reward for retirement investment.

Even though the exposure to AIF was restricted to five per cent, certain assets under Scheme A involved longer lock-in periods, which limited the liquidity. So, according to the PFRDA, following the merger, investments will shift to schemes with higher liquidity, and it will make the withdrawals and switches smooth.

How Will It Impact Subscribers?

Kurian Jose, CEO, Tata Pension Management, says, “The step to merge the relevant asset classes in to Scheme E and C will help investors through a enhanced risk-return profile of the Schemes E & C with lower concerns over liquidity pertaining to alternate assets.”

Per the notification, “These reforms expand the permissible investment universe, enhance diversification, and promote a more efficient scheme architecture to help subscribers build stronger and more resilient retirement wealth.”

PFRDA, as the regulator, determines how these schemes operate, and has approved other changes also recently, such as the introduction of the Multiple Scheme Framework (MSF), a change in nomenclature of schemes, among others.

Lately, the PFRDA has taken several measures to make the social security scheme, NPS, align with the evolving best practices and make it better suit the subscribers’ requirements. The recent announcement by the Securities and Exchange Board of India (Sebi) to simplify asset classification has also been a factor in reshaping the NPS investment framework.

“Those NPS Subscribers who had opted for Scheme A in Tier I (Active Choice) can exercise additional choice of switching their wealth from Scheme A into any other asset classes of their choice without any additional cost till 25th Dec 2025 as per applicable guidelines,” reads the notification.

Jose explains, “PFRDA has offered a one-time, cost-free window for all Scheme A subscribers to switch their accumulated corpus in Scheme A to any other asset class of their choice (E, C, or G) under the Active Choice option. This allows subscribers to retain control over their portfolio allocation.” 

However, “If an existing Scheme A subscriber does not make an explicit choice by the deadline (December 25, 2025), their accumulated corpus in Scheme A will be automatically reassigned to Schemes C and E based on PFRDA's prescribed norms,” he adds.

With these changes, the Tier I subscribers will have more diversified and, at the same time, more liquid portfolios.