Key Takeaways
- • PFRDA has introduced a common risk-classification framework for NPS Multiple Scheme Framework (MSF) schemes, requiring Points of Presence (PoPs) and Central Recordkeeping Agencies (CRAs) to display each scheme's risk category alongside its name from December 1.
- • Five MSF categories are defined by equity exposure, ranging from aggressive growth (80-100% equity) to debt (0-10% equity); category B, high growth-high risk, carries 60-80% equity exposure.
- • Schemes from different pension funds within the same category must be displayed together before subscriber selection, shifting comparison ahead of familiarity with a fund manager.
- • A standardised set of disclosures covers historical returns, benchmark returns, applicable charges, risk-o-meter, assets under management and launch date.
- • Commentators caution that higher historical returns may reflect higher risk, and that equity exposure alone does not imply identical strategies or outcomes.
Summary
The Pension Fund Regulatory and Development Authority (PFRDA) has introduced a common classification framework for schemes under the Multiple Scheme Framework (MSF) of the National Pension System (NPS), aimed at making it easier for subscribers to compare offerings across pension funds. The framework is based on equity allocation mandates. According to the report, the changes take effect from December 1, when Points of Presence (PoPs) and Central Recordkeeping Agencies (CRAs) must display the risk category alongside each scheme name.
PFRDA had previously established five MSF categories tied to equity exposure and risk level, running from aggressive growth (80-100% equity) to debt (0-10% equity). Under the new rules, schemes from different pension funds within a category must be shown together before a subscriber makes a final selection. The report illustrates this with category B, high growth-high risk with 60-80% equity exposure, where an investor can view all category B schemes from different pension funds on one screen. The intent is for investors to compare across providers before choosing a pension fund, rather than relying mainly on familiarity with a particular manager.
The regulator has also prescribed a common disclosure set covering historical returns, benchmark returns, applicable charges, the risk-o-meter, assets under management and date of launch. The article stresses that these metrics should be read together rather than focusing on returns alone, with historical performance assessed against the relevant benchmark and the level of risk taken.
Rahul Bhagat, CEO of DSP Pension Fund, said the objective is to make NPS more transparent so that investors choose based on the risk they take rather than the scheme name or pension fund brand. Amit H L, founder and CEO of Floatr Wealth, advised investors to weigh consistency of performance, portfolio strategy, charges and the fund manager's approach. He noted that standardisation enables comparison but that investors still need to understand what they are comparing. The article notes MSF schemes are typically sought by do-it-yourself investors with longer horizons, a sound grasp of market risk and a desire for greater control over their retirement portfolios.
PFRDA had previously established five MSF categories tied to equity exposure and risk level, running from aggressive growth (80-100% equity) to debt (0-10% equity). Under the new rules, schemes from different pension funds within a category must be shown together before a subscriber makes a final selection. The report illustrates this with category B, high growth-high risk with 60-80% equity exposure, where an investor can view all category B schemes from different pension funds on one screen. The intent is for investors to compare across providers before choosing a pension fund, rather than relying mainly on familiarity with a particular manager.
The regulator has also prescribed a common disclosure set covering historical returns, benchmark returns, applicable charges, the risk-o-meter, assets under management and date of launch. The article stresses that these metrics should be read together rather than focusing on returns alone, with historical performance assessed against the relevant benchmark and the level of risk taken.
Rahul Bhagat, CEO of DSP Pension Fund, said the objective is to make NPS more transparent so that investors choose based on the risk they take rather than the scheme name or pension fund brand. Amit H L, founder and CEO of Floatr Wealth, advised investors to weigh consistency of performance, portfolio strategy, charges and the fund manager's approach. He noted that standardisation enables comparison but that investors still need to understand what they are comparing. The article notes MSF schemes are typically sought by do-it-yourself investors with longer horizons, a sound grasp of market risk and a desire for greater control over their retirement portfolios.
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