Where Does Your NPS Money Go? Schemes, Funds & the New MSF Framework Explained

Part 3 of 4 — Where Does Your Money Go?

NPS Investment Schemes — Common Schemes & the New MSF Framework

Overview

Once you open an NPS account and contribute, the real question is: where does your money actually go?

NPS gives you control over how your money is invested. You choose the asset classes, the fund manager, and the investment strategy — or you let the system decide automatically based on your age. This part explains both the traditional scheme structure and the major new framework introduced in October 2025.

The Two Investment Approaches

When you invest in NPS, you pick one of two approaches:

1. Active Choice

You decide everything. You choose your Pension Fund Manager (PFM) and specify the percentage to allocate across different asset classes. This suits investors who are comfortable making their own investment decisions.

2. Auto Choice (Lifecycle Fund)

You select a risk profile, and the system automatically adjusts your asset allocation as you age — reducing equity exposure and increasing debt as you get older. This suits investors who prefer a hands-off approach.

Common Schemes — The Traditional NPS Structure

The original NPS investment framework, now referred to as Common Schemes, offers three core asset classes:

Scheme E — Equity

Invests predominantly in equity market instruments (stocks and stock-related securities). This carries the highest risk but also offers the highest potential returns over the long term.

Under Active Choice:

• Tier I subscribers: maximum equity allocation is 75%

• Tier II subscribers: can allocate up to 100% in Scheme E

Under Auto Choice:

• Equity exposure is capped at 75% up to age 35, then tapers down as you age

Expected long-term returns (based on past 10 years): approximately 12–15% per year (not guaranteed; market-linked)

Scheme C — Corporate Bonds

Invests in fixed income instruments issued by companies — corporate bonds, debentures, and similar debt securities. These are safer than equity but carry slightly more risk than government securities.

Under Active Choice: you can allocate up to 100% in Scheme C.

Expected long-term returns: approximately 9–11% per year (not guaranteed)

Scheme G — Government Securities

Invests in central and state government bonds and securities. This is the safest asset class within NPS — backed by the Government of India — but offers lower returns compared to equity.

Under Active Choice: you can allocate up to 100% in Scheme G.

Expected long-term returns: approximately 9–10% per year (not guaranteed)

Scheme A — Alternative Investment Funds (Discontinued)

Previously, NPS Tier I also had a fourth option — Scheme A — which invested in Alternative Investment Funds (AIFs), REITs, InvITs, and Basel III bonds. However, in a December 2025 PFRDA circular, Scheme A was merged into Scheme E and Scheme C. The investment avenues previously under Scheme A (including gold and silver ETFs) are now absorbed into the other schemes. Scheme A no longer exists as a standalone option.

Allocation Rules Under Active Choice (Common Schemes)

You can also choose up to three different PFMs under Active Choice — allocating different asset classes to different fund managers.

Auto Choice — Lifecycle Funds

Under Auto Choice, there are four lifecycle fund options based on risk appetite:

As you age, the equity allocation automatically reduces and shifts to safer instruments — the system does this for you without manual intervention.

If you do not make any choice at all during registration, you are defaulted to Auto Choice (Moderate) with SBI Pension Funds as the default PFM.

The New MSF Framework — Multiple Scheme Framework

On 1 October 2025, PFRDA introduced a landmark update called the Multiple Scheme Framework (MSF), which fundamentally expanded how NPS works for non-government subscribers.

What Is MSF?

MSF allows each Pension Fund Manager to launch multiple individual schemes tailored to different subscriber profiles — for example, schemes designed for gig workers, entrepreneurs, aggressive investors, or conservative retirees. Each MSF scheme has its own NAV, benchmark, risk profile, and disclosure document.

Who Can Use MSF Schemes?

MSF is available only to non-government sector subscribers, including:

• All Citizens Model subscribers

• Corporate NPS subscribers

• Self-employed individuals

Government sector employees continue with the Common Schemes only.

The Biggest Change — 100% Equity

Under MSF, Pension Fund Managers can launch high-risk schemes with up to 100% equity allocation. This is a significant shift from the previous cap of 75% under Active Choice for Tier I.

This makes NPS competitive with equity mutual funds for long-term wealth creation, while retaining the pension structure and tax benefits.

MSF Scheme Types

Each PFM can offer schemes with different risk variants:

• Moderate — balanced allocation across equity and debt

• Aggressive — high equity allocation, up to 100%

Examples already launched include HDFC Pension's Equity Advantage Fund (up to 100% equity) and Balanced Advantage Fund.

How MSF Compares to Common Schemes

Vesting Period Under MSF

MSF schemes have a minimum vesting period of 15 years. This means if you start investing at age 30, you can exit at 45 under MSF rules (or at age 60, whichever is relevant). This is notably shorter than the standard NPS lock-in to age 60.

Switching rules:

• During the 15-year vesting period: you can switch from MSF to Common Schemes

• After 15 years: you can switch between MSF schemes

• MSF-to-MSF switches within 15 years are not permitted

The Cost Difference

Common Schemes charge a Fund Management Charge (FMC) of 0.09% per year — one of the lowest in the world. MSF schemes carry a higher FMC of up to 0.30% per year. The higher cost reflects the additional customization, active management, and differentiated strategies offered under MSF.

How to Read Your NPS Account

When you log into your CRA portal using your PRAN, you will see:

• Unit balance in each scheme

• Current NAV for each scheme

• Current value = units × NAV

• Contribution history — all credits to your account

• Transaction statement — downloadable for tax records

NAV is calculated at the end of every working day, Monday to Friday.

Which Option Should You Choose?

There is no single right answer — it depends on your age, risk appetite, and retirement timeline. Here is a rough guideline:

You can change your investment option once per financial year at no cost under Common Schemes.

Summary

NPS gives you a structured yet flexible way to invest your retirement savings. The traditional Common Schemes — E, C, and G — cover equity, corporate bonds, and government securities, with clear allocation limits. The new MSF framework, live since October 2025, adds a layer of personalization with up to 100% equity exposure for non-government subscribers.

Understanding which scheme suits your risk profile and timeline is the most important investment decision you will make within NPS.

Previous: Part 2 — Who Can Join NPS? Rules for Resident Indians, NRIs, OCIs & Minors

Next: Part 4 — NPS Withdrawal Rules in 2025 — What Changed and What You Need to Know

Source: PFRDA, NPS Trust (npstrust.org.in), Protean CRA portal, HDFC Pension MSF documentation. Data accurate as of April 2026.