After experiencing one of the steepest declines on April 7, the stock market rebounded today, April 8, 2025. The markets have faced significant volatility for the past few months, and recent US tariff policies have intensified this unpredictability. The markets have been reeling under pressure since the last quarter of 2024. Recently, uncertainty has increased due to macroeconomic factors, with one of the main contributors being tariff policies introduced by the US.
The fluctuations and uncertainty in the market are significant not only for direct investors in the stock market but also for those with equity exposure through other financial instruments. This includes the long-term retirement planning tool National Pension System (NPS).
Can Market Fluctuations Hurt Your NPS Corpus?
NPS portfolio is exposed to equities and is impacted with market fluctuation. For instance, the one-year NPS return from equity was approximately 34 percent as of September 14, 2024, but fell to around 11 percent by February 1, 2025, indicating a significant decline. It has further declined to 6.35 per cent as of March 28, 2025.
Should It Be A Cause Of Concern To Those Investing In NPS To Accumulate A Substantial Retirement Corpus?
S. Ravi, former BSE Chairman and founder of Ravi Rajan & Co., says, “Market fluctuations directly impact retail investors' NPS corpus through the varying valuations of its equity, corporate bond, and government security components”.
Says Ravi Saraogi, CFA, a SEBI Registered Investment Adviser (RIA) and Co-founder of Samasthiti Advisors: “Market fluctuations will impact your NPS corpus as NPS has an allocation to equities which is volatile. So, with the current fall in equities, the NPS corpus will come down as well, however, this should not be cause for worry as such fluctuations are part and parcel of investing in equities”.
Should You Change NPS Investment Choice Amid Volatility?
NPS offers its subscribers two investment options: Auto and Active choice.
Under the auto choice of investment, the percentage of equity exposure is pre-determined. It can be a maximum of 75 per cent up to the age of 35, and then tapering starts
In the active choice option, 75 per cent equity exposure is allowed until 50 years of age
In the Balanced Life Cycle fund, a maximum of 50 per cent equity exposure is allowed until the age of 45
Saraogi suggests, “One should continue with the maximum allocation of 75 per cent as long as they are at least 10 years away from retirement”.
However, for subscribers who have chosen the auto choice option, equity exposure automatically decreases as the subscriber ages, irrespective of market conditions.
On switching the option, he adds, “It depends on the risk appetite of the individual. In case the auto choice is not giving the individual their desired level of equity exposure, we would recommend them to use the active choice to take benefit of the current correction in equity prices”.
Is 'Auto Choice' The Only Option For Employees With Employer Contributions?
The option to switch between investment choices remains the same for all subscribers, including the all-citizen model. However, for the government and corporate model, it may be somewhat restricted.
Rajesh Khandagale, SVP - National Pension System, KFin Technologies clarifies, “The employer has the choice to decide on the investment option – both the PFM as well as the Schemes – for their employees for the period of one year from the date when the employee joins corporate NPS for that employer/company”.
“Employees have to be aware that the employer choice of investment is limited only to one year of their joining Corporate NPS under that organization. After one year the employee can change the PFM as well as the Schemes”, he adds.
What To Do With NPS Amid Market Volatility?
Saraogi advises, “Such volatility is normal in any investment which has market exposure. Subscribers should ignore such short-term noise and focus on the long-term returns of NPS, which has been good”.
Ravi suggests, “For retail investors, contribution timing is key. SIPs during downturns enable rupee-cost averaging, potentially boosting long-term returns. while market fluctuations cause temporary corpus dips, a disciplined, long-term investment strategy aligned with risk profile and age is crucial for maximising NPS returns and achieving retirement goals”.
As NPS is a long-term investment, short-term market fluctuations should not be the reason to worry.
As of March 28, 2025, NPS equity returns for three years stood at 14.27 per cent.
