Summary of this article
Match your NPS allocation to your exact retirement timeline.
Far from retirement? Use equity dips as an entry point.
Near retirement? Focus on protecting capital using G and C.
By Ajay Kumar Yadav, CFPCM
For NPS investors, the current market presents an unusual combination: equities have been weak and volatile, while bond yields have moved higher. Inside NPS, the three core asset classes are behaving very differently: E for Equity, C for Corporate Bonds and G for Government Securities.
The easy response is to look at the last one-year return and move towards whichever asset class has done better. But retirement portfolios should not be managed that way. For someone with 15 years before retirement, weak equity markets can create an accumulation opportunity. For someone retiring in two or three years, the same volatility can be a reason to reduce risk.
So the real question is not which NPS asset class is performing best today. It is: Which asset class should I be accumulating at this stage of my retirement journey?
First Know Whether You Are In Auto Choice Or Active Choice
Under Auto Choice, the subscriber selects a lifecycle option and the allocation changes automatically with age. Equity exposure gradually reduces as the investor gets older, while debt allocation rises. For these investors, the system is already doing the rebalancing.
An Auto Choice investor should therefore focus less on short-term market moves and more on whether the selected lifecycle option still suits the retirement plan.
Under Active Choice, the subscriber decides how much to allocate to Equity, Corporate Bonds and Government Securities within the permitted NPS limits.
Here, current market conditions matter more because the investor controls the allocation.
The Last One Year Tells An Interesting Story
According to the Value Research data compiled as of September 26, 2026, for the one-year period ended September 25, Tier I Equity schemes delivered returns ranging from about negative 7.56 per cent (-7.56 per cent) to negative 1.59 per cent (-1.59 per cent).
Corporate Bond schemes returned around 4.18 per cent to 5.09 per cent, while Government Securities schemes delivered about 2.24 per cent to 3.21 per cent.
On a simple arithmetic average of the schemes in the data set, this works out to roughly negative 3.69 per cent (-3.69 per cent) for E, 4.68 per cent for C and 2.71 per cent for G.
At first glance, debt appears to have clearly done better. But retirement investing cannot be managed by looking only in the rear-view mirror.
For somebody with 12 or 15 years left, weak equity returns do not necessarily make E less attractive. A debt-heavy portfolio may instead use the weakness to rebalance gradually towards growth.
For someone retiring shortly, the interpretation is very different.
The same market decline can be an opportunity for one NPS investor and a risk for another.
More Than 10 Years To Retirement: Too Much Debt Can Also Be Risky
Consider an Active Choice subscriber with more than 10 years left before retirement and 65 per cent to 70 per cent of the NPS corpus invested in C and G.
For someone with adequate risk capacity, that allocation deserves a review.
When retirement is more than a decade away, short-term equity volatility may not be the biggest risk. The bigger risk could be insufficient long-term compounding.
A person retiring at 60 may need the corpus for another 20 or 30 years, so excessive debt can itself become a retirement risk.
If markets have corrected and the investor has a long horizon, gradually moving a portion of C or G towards E can be considered. There is no need to identify the exact market bottom.
An investor currently holding 30 per cent E, 40 per cent C and 30 per cent G could review whether a phased move towards 40 per cent to 50 per cent E, with a corresponding reduction in debt, is more appropriate.
When retirement is far away, volatility can be used. When retirement is close, volatility has to be managed.
Five To 10 Years Away: Balance Growth With Protection
The decision becomes more nuanced for somebody with five to ten years before retirement.
Such an investor still needs equity because inflation continues after retirement. But with only six or seven years left, there is less time to recover from a severe drawdown.
If an Active Choice investor is heavily concentrated in C and G, weaker equity markets may still provide an opportunity to increase E gradually. But the move should be measured.
Likewise, someone who already has substantial equity should not increase it simply because the market has fallen.
This is where rebalancing is more useful than making a market call.
Rising G-Sec Yields Create Another Opportunity
Government bond yields have risen, which changes the equation for the G bucket. Government securities carry very low sovereign credit risk, but G-Sec funds are still sensitive to interest rates. Bond prices and yields generally move in opposite directions. When yields rise, existing longer-duration bond prices can fall, temporarily affecting the net asset values (NAVs).
But rising yields have another side: fresh money can now be deployed into government securities at higher yields.
So rising yields can hurt existing bond prices in the short term while improving yields available on new investments.
G is high-quality debt, but it still carries duration risk.
Who Should Consider Increasing G?
G can become more relevant for an investor approaching retirement or a conservative subscriber seeking more sovereign-quality debt.
But moving heavily from E into G merely because G has delivered positive one-year returns while Equity is negative would amount to performance chasing.
The decision should come from the investor’s retirement horizon and risk capacity.
What About C Versus G?
C and G both sit on the debt side of NPS, but they play different roles.
Corporate Bonds generally provide a yield premium because the investor is taking corporate-credit exposure. Government Securities provide sovereign-quality credit exposure, but longer-duration G-Secs can be more sensitive to changes in interest rates.
The latest one-year data shows the difference. Corporate Bond schemes in the Value Research sample returned roughly 4.2 per cent to 5.1 per cent, while G-Sec schemes delivered around 2.2 per cent to 3.2 per cent.
That does not mean C is automatically better.
Someone approaching retirement with a very high C allocation may still want to evaluate whether a portion should move towards G for higher sovereign-credit quality.
Two Or Three Years From Retirement: Don’t Turn The Corpus Into A Market Bet
The strategy changes materially when somebody is only two or three years away from retirement. This is generally not the stage to sharply increase equity exposure merely because markets have corrected. A younger investor can wait for recovery. Someone who may soon need the retirement corpus may not have that luxury.
A major equity decline just before or after retirement can hurt disproportionately, particularly if withdrawals begin at the same time. Protecting the corpus therefore becomes more important than maximising return. Pasted markdown
That does not mean equity should become zero. Some equity can still help fight inflation during a long retirement. But the E allocation needs to be controlled, while C and G assume a larger role in portfolio stability.
What If Retirement Is Close, But The Money Is Not Needed?
Suppose someone is approaching retirement but has rental income, pension income, deposits, mutual funds or other assets and therefore does not need to draw from NPS immediately.
If the investor can genuinely leave the NPS corpus invested for another three to five years, the effective investment horizon is longer than the retirement date suggests.
If such an investor is excessively debt-heavy, a calibrated increase of perhaps 10 to 15 percentage points in Equity may be considered after looking at the broader retirement balance sheet and risk capacity.
But the ability to defer withdrawal does not automatically mean the ability to take more risk.
Auto Choice Investors Should Think Differently
Most of the tactical E, C and G discussion is more relevant to Active Choice subscribers.
Auto Choice investors already have a lifecycle framework that gradually adjusts equity and debt with age. For them, frequent reactions to market movements can defeat the purpose of the structure.
Their review should be simpler:
Does the lifecycle option I selected still match my actual risk capacity?
Two subscribers of the same age can have very different financial circumstances, so they need not follow the same risk path.
E, C And G Are Not Competing Funds
Perhaps the biggest mistake an NPS investor can make is to treat E, C and G as three competing funds.
They have different jobs.
E – is the growth engine.
C – provides corporate-debt exposure and relative stability.
G – provides sovereign-quality debt exposure and can benefit when the interest-rate cycle eventually turns.
· For someone 15 years away from retirement, the biggest risk may be not growing the corpus enough.
· For someone three years away, it may be a major drawdown just before the money is needed.
· For someone retiring but able to leave NPS untouched for another five years, the calculation changes again.
· That is why the same market can produce two completely different, yet equally sensible, decisions.
· Rising yields may create an opportunity for someone strengthening the defensive side of a retirement portfolio.
· Falling equities may create an opportunity for someone with another decade or more to invest and an NPS allocation that has become too debt-heavy.
The real question for an NPS investor is not:
Is E better than C or G today?
It is:
Which risk should I be taking today so that I reduce the bigger risk at retirement?
Once that is answered, the allocation decision becomes much clearer.
The author is the Group CEO & CIO, Wise Finserv,
This article is for informational purposes only and does not constitute investment advice. All figures used are illustrative. Tax laws are subject to change; please consult a qualified tax advisor for personalised guidance.
(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
