NPS 2.0: How can I customise my pension plan, personalise risk, returns, flexibility

PFRDA has launched the Multiple Scheme Framework (MSF) under the National Pension System (NPS), giving investors greater flexibility, customisation, and choice. Non-government subscribers can now select from low-, moderate-, or high-risk plans, with equity exposure up to 100%, and can withdraw after 15 years instead of waiting until 60. Leading pension funds like HDFC, Axis, ICICI Prudential, and Kotak have introduced new schemes catering to varied risk profiles — from conservative debt-focused to aggressive equity-heavy options. How investors should approach this change?

Advice by Akhil Rathi, Head – Financial Advisory at 1 Finance

Investors should welcome this development as a progressive step in India’s pension landscape, but the real benefit will depend on how consistently they invest rather than how aggressively they chase returns. The new Multiple Scheme Framework (MSF) brings more flexibility and options within NPS, but the essence of wealth creation remains the same — discipline, patience, and long-term commitment. Those who build a steady investment habit through regular contributions, regardless of market movements, are more likely to benefit from compounding and achieve a meaningful retirement corpus. The new design simply gives them more ways to express their risk appetite without disturbing the structure and purpose of NPS.

The introduction of high-risk schemes with up to 100% equity allocation is attractive for younger investors with a long horizon, but it should not tempt them to treat NPS like a mutual fund or short-term investment product. The 15-year vesting period is not a restriction — it is actually a strength. Lock-in ensures that investors stay invested through market cycles and don’t make emotional decisions during volatility. Equity delivers returns only when held patiently over many years, and the NPS framework naturally enforces that discipline. In this sense, the lock-in is not a disadvantage but one of the best features that make NPS an ideal tool for retirement wealth creation.

For those who are risk-averse or nearing retirement, moderate or low-risk variants will continue to provide stability with controlled exposure to equity and higher allocation to debt. Investors should not rush to switch existing funds or over-diversify across multiple schemes simply because new options are available. The focus should remain on aligning each choice with long-term goals, time horizon, and comfort with volatility. The flexibility to mix different risk variants under one PAN should be used thoughtfully, not reactively.

Ultimately, this change signals a maturing of India’s pension system. NPS now combines the structure of a disciplined retirement plan with the customisation once found only in mutual funds. The best approach is to view MSF as an opportunity to refine one’s investment journey — maintaining consistent contributions, reviewing risk allocation periodically, and using the long-term lock-in as a built-in safeguard for wealth compounding. When used this way, the MSF framework will help investors not only earn better returns but also develop healthier, more sustainable investment habits for life.

NPS nomenclature

The Pension Fund Regulatory and Development Authority (PFRDA) has also revised and streamlined the nomenclature of National Pension System (NPS) Life Cycle Funds to ensure better alignment between their names, risk–return profiles, and equity allocation. The review revealed inconsistencies, such as the Balanced Life Cycle Fund (BLC) holding higher equity exposure at certain ages than the Life Cycle 75 Fund, which was designated as an aggressive option. To resolve this, PFRDA has rationalised fund names and brought the BLC under the Auto Choice category.

Under the new framework, Life Cycle Funds are now classified as — Life Cycle 25 – Low, Life Cycle 50 – Moderate, Life Cycle 75 – High, and Life Cycle – Aggressive. Each name clearly conveys the fund’s equity exposure, ranging from 25% to 75% during the early years and tapering as the investor ages. The move enhances transparency and helps investors select funds aligned with their risk appetite and retirement goals.

PFRDA has also reclassified investment options under NPS Auto Choice and Active Choice as Common Schemes (CS), enabling greater flexibility. Through the Multiple Scheme Framework (MSF), subscribers can now diversify across several schemes and pension funds within their Permanent Retirement Account Number (PRAN), optimising their retirement portfolio management.