How Much Should You Invest in NPS?

Mint

28-04-2025

For many first-time investors, the question isn't whether to invest—it's how much. In Episode 5 of 'NPS Made Simple', Subhasis Ghosh, CEO of Kotak Mahindra Pension Fund, sits down with Mint to break down the NPS contribution strategy: from the minimum required to the ideal asset allocation based on your risk appetite and life stage.
Using the scenario of 30-year-old Meena, who wants to start saving for retirement but doesn't know how much to contribute or what returns to expect, the episode demystifies some of the most commonly asked questions around NPS investing.
Q: What is the minimum and maximum one can contribute to NPS?
The minimum annual contribution is just ₹ 1,000. That's it. There's no upper limit—you can invest as much as you like. Of course, tax benefits are capped, but you can continue contributing beyond those limits if you want to grow your retirement corpus.
Q: What are the asset classes under NPS, and where does the money go?
NPS invests across four asset classes—Equity (E), Corporate Bonds (C), Government Securities (G), and Alternative Assets (A).
E: Equity—Top 200 listed companies
C: Corporate Bonds—High-safety debt instruments
A: Alternative assets—REITs, InvITs, etc.
Each subscriber can customize allocation across these classes, depending on their risk profile.
Q: Can one choose different fund managers for different asset classes?
Yes, and that's one of NPS's greatest advantages. You can select separate fund managers for each asset class under both Tier 1 (retirement-focused) and Tier 2 (flexible, liquid) accounts. In fact, you can potentially work with up to six different fund managers at once.
Q: Can I change my fund manager or allocation?
Absolutely. You can switch your fund manager once a year and change your asset allocation four times a year, free of cost. These changes are not taxable—a big benefit compared to other financial instruments.
Q: How do NPS fund managers perform in the long run?
Ghosh points out that over a 7–10 year horizon, the difference in returns between the top and bottom performing NPS fund managers is often just 1%.
'If the lowest is 9.7%, the highest may be 10.7%. So wherever you've invested, if it's within NPS, you've already made a smart choice.'
Active Choice lets you pick your asset mix (up to 75% in equity).
Auto Choice uses predefined lifecycle-based models:
LC75: High equity exposure at a young age, gradually decreasing.
LC50 / LC25: More conservative allocations.
Balanced Fund: Newer option that maintains 50% equity exposure until age 45, tapering down gently.
You can switch between Active and Auto modes four times a year, allowing flexibility as your financial literacy and goals evolve.
Q: How often should one contribute to NPS? Monthly SIP or yearly lump sum?
There's no restriction. You can contribute as often as you like—even daily. But most people opt for a monthly SIP, which is simple and aligns well with salary cycles.
Q: What advice would you give Meena—or any young investor—on choosing a strategy?
'If I were Meena,' Ghosh says, 'I'd opt for Active Choice, put 75% in equity, and let the fund manager handle the rest.' His logic? Equity consistently beats inflation over time. 'You can always move to a conservative strategy later. But your 30s are the time to take calculated risks.'
Takeaway: Whether you want full control or set-it-and-forget-it simplicity, NPS has a structure that fits. As Ghosh puts it:
'Don't overthink the perfect time or perfect fund—just start. With the lowest fund management charges and flexibility, NPS is built to support you over decades.'
Watch Episode 5 to learn how to align your contribution strategy with your life goals—and build retirement wealth with confidence.
First Published: 28 Apr 2025, 06:23 PM IST