Is Your NPS Underperforming? 5 Smart Moves to Boost Your Retirement Corpus

The National Pension System (NPS) is designed to be a set-it-and-forget-it vehicle for retirement planning. However, 'set-it-and-forget-it' often translates to 'set-it-and underperform.' Given that your NPS corpus is market-linked and will fund your life after work, passive neglect can severely undermine your financial security. If your annual statement shows lackluster growth, it's time to take control.

Here are some smart, proactive moves to analyze and boost your NPS returns, ensuring your retirement corpus reaches its full potential.

1. Audit and Optimize Your Asset Allocation

The mix of assets in your NPS account—equity exposure (E), corporate bonds (C), and government securities (G)—is the single biggest factor influencing your returns.

The Problem with 'Auto Choice'

While the 'Auto Choice' option offers convenience by automatically adjusting your asset allocation based on your age, it might be too conservative, especially if you have a long investment horizon (more than 10 years). The 'Auto Choice' fund generally reduces equity exposure too rapidly.

The Smart Move: Switch to 'Active Choice' early in your career. Increase your equity exposure up to the maximum permitted limit (75% for individuals below 50). As you approach retirement, you can gradually taper this exposure yourself, allowing for higher potential growth during the accumulation phase.

2. Compare and Switch Your Fund Manager

Many subscribers select a fund manager based on initial recommendations and never revisit the decision. This is a costly mistake.

Performance Review

All eight available NPS fund managers handle the same assets but apply different strategies. Their performance can vary significantly over a 3-year or 5-year period.

The Smart Move: Use the publicly available quarterly performance reports on the PFRDA website. Compare returns across fund managers for the same asset classes (E, C, and G). If your current manager consistently lags behind the top two performers over the trailing three years, execute a fund manager switch. The PFRDA allows you to switch your fund manager once per financial year.

3. Maximize the Tax Advantage (The ₹50,000 Edge)

While the primary goal is boosting returns, optimizing tax savings is a guaranteed way to increase your take-home amount.

The NPS Exclusive Deduction

The Smart Move: Ensure you are claiming the additional tax benefit of ₹50,000 under Section 80CCD(1B), regardless of whether you have exhausted the ₹1.5 lakh limit under Section 80C. This is an exclusive NPS feature that effectively lowers your taxable income, providing an immediate, guaranteed boost to your net wealth.

4. Don't Ignore Tier II: The Flexible Booster Account

The NPS has two accounts: Tier I (mandatory, tax-saving, locked) and Tier II (voluntary, flexible).

Strategic Use of Tier II

Tier II accounts can offer competitive returns and high liquidity, without the strict lock-in of Tier I.

• The Smart Move: Use the Tier II account as a flexible long-term investment alternative to liquid Mutual Funds. While contributions are no longer tax-deductible (except for certain government employees), you still benefit from the low cost and professional management, which can outperform traditional fixed-income avenues over time, aiding your long-term goal of wealth creation.

Conclusion

Your age is the ultimate guide to your risk appetite. Your investment choice should reflect your remaining time horizon.

• The Smart Move: If you are over 45 and still have high equity exposure in the 'Active Choice,' reconsider. While aggressive strategies yield higher returns, they also expose your corpus to higher market risk. Revisit the Auto Choice or manually adjust your asset allocation to increase exposure to safer assets like government securities (G) and corporate bonds (C) as you get closer to retirement. This protects the wealth you have already accumulated.

By making these 5 proactive moves, you transition from a passive subscriber to an active portfolio manager, ensuring your NPS corpus works harder to provide the dignified retirement you deserve.