Investing in NPS? Here Is How To Select Your Fund Manager

The National Pension System (NPS) offers the chance to build a robust retirement corpus with consistency and stability. One of the biggest aspirations of people is to have a substantial retirement corpus and also to get regular pension / income after retirement. NPS can help you hit two birds with one stone. NPS is a regular investment plan. “Therefore, the earlier you start, the better it is for corpus creation. But the more important thing about NPS is the choice of risk you seek to take,” says Nehal Mota, Co-Founder & CEO, Finnovate, a wealth management firm. 

The NPS offers two options: the auto choice and active choice. In an auto choice, the allocated funds are divided across asset classes in a certain predetermined ratio. In this method, the NPS investor need not stress about asset allocation since the model does the asset allocation for you. “In auto choice, the asset allocation is automatically adjusted with age. In the other choice, active choice, the NPS investor can actually choose from equity orientation and debt orientation. For younger people, this can be a good way to build a retirement corpus,” says Mota. 

In case you select the active choice, NPS fund managers play a crucial role in optimising your returns by strategically managing asset allocation across equities, government bonds, corporate debt, and alternative assets. They constantly assess market conditions, balancing risk with performance to ensure long-term growth of pension funds. 

Their decisions are shaped by economic indicators, interest rate movements, and market trends. Fund managers also ensure transparency through detailed reporting, enabling subscribers to track the performance of their portfolios and adjust investment strategies as needed.

How To Choose A Fund Manager For NPS

When choosing a fund manager for the NPS, you can consider several aspects. 

Track Record: Look at the historical performance of the fund manager over different time periods (one-year, three-year, five-year returns). 

Specialisation: “Choose a fund manager based on your preferred asset allocation mix. Some managers may have more expertise in equity, while others are stronger in debt or government securities,” says Gaurav Goel, Securities and Exchange Board of India (SEBI) registered Investment Advisor. 

Consistency: You can study the fund manager's records to see if they've consistently produced good results.

Review Your Fund Manager’s Performance: You should do a periodic review, usually every two years, to figure the actual performance of the fund manager vis-à-vis others.

Investment Style: “If you're aggressive, you might want to look for a fund manager with equity allocations that outperform others. If you're conservative, you might want to look for a fund manager that prioritises government securities,” says Goel. 

Reputation and Credibility: You should opt for fund managers who are backed by reputable and financially stable institutions. This ensures reliability and ethical management. Also check for any past regulatory issues or controversies involving the fund manager.

By carefully selecting a fund manager aligned with your risk tolerance and investment goals, you can harness the potential of the NPS to build a substantial retirement corpus.