NPS 100% equity option explained: How it works, who should consider it and key rules

The National Pension System (NPS) has traditionally allowed subscribers to invest up to 75% of their contributions in equities under the Active Choice option. From 2025, the Multiple Scheme Framework (MSF) changed this by allowing pension fund managers (PFMs) to introduce new schemes with 100% equity exposure.

So, what does 100% equity in NPS mean, how does it work, and should investors consider it?

What is the NPS 100% equity option?

Under the Multiple Scheme Framework, pension fund managers can launch high-risk schemes that invest up to 100% in equities. The earlier NPS structure, now referred to as common schemes, is still available, with equity exposure capped at 75%.

The 100% equity option is a scheme that a pension fund manager can offer, rather than a rule requiring every NPS investor to put all their money into equities.

Common Schemes allow investors to select one scheme per Pension Fund Manager (PFM), while MSF allows investors to hold multiple schemes simultaneously.

Can you invest in more than one NPS scheme?

Yes. One of the key benefits under MSF is that non-government subscribers, including corporate employees, self-employed individuals, and others, can hold multiple schemes under the same Permanent Retirement Account Number (PRAN).

For example, an investor could direct a larger share of new contributions to a 100% equity scheme and allocate the rest to a government securities scheme or a corporate bond scheme.

What are the key benefits of NPS 100% equity option?

The biggest advantage is greater flexibility. Investors can choose schemes based on their risk appetite, financial goals, and stage of life.

MSF also allows pension fund managers to offer specialised strategies for different investor groups. Each MSF scheme will have its own NAV, benchmark, and risk profile, making it easier to track individual scheme performance.

The framework also retains NPS's regulated structure and existing tax benefits for eligible Tier-I contributions.

What should you check before choosing NPS 100% equity?

A 100% equity allocation should not be selected simply because it offers higher growth potential. Equity markets can be volatile, and investors should consider their age, income stability, dependents, liabilities, and existing equity investments.

A person in their 20s or 30s with decades until retirement may be better positioned to tolerate volatility. Someone approaching retirement may prefer a moderate or G-scheme allocation to reduce risk.

Cost is another factor. MSF schemes can charge fund management fees of up to 0.30% of AUM, compared with around 0.09% for some common schemes. Even a small cost difference can matter over a long period.

MSF schemes have a minimum vesting period of 15 years or until the subscriber reaches 60, whichever is earlier.

How can investors use this NPS equity option?

Investors could direct a larger share of contributions towards equity early in their careers and gradually increase relatively stable allocations as retirement approaches. Regular contributions can also help spread the impact of market volatility.

However, investors should not assume that the NPS will automatically reduce equity exposure as they approach retirement. Under MSF, the investor needs to choose how future contributions are allocated across schemes.

Disclaimer: This is purely for educational/informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.