National Pension System: a Deep Dive Into Appropriate Investment Strategies

Srivinivas and Rekha sat across each other elaborately discussing the intricacies of securing their monetary stability. The topic at hand was NPS (National Pension Scheme), a financial instrument for retirement planning. 

Srivinas said “Rekha, invested in NPS? I hear it is a prudent decision for securing our retirement years.”

Rekha replied, “Yes, NPS is a long-term, voluntary retirement savings option super fund with low fees prepared to allow systematic savings. However, before this, we must deep dive into the appropriate investment strategies for making the most out of this.”

Top appropriate investment strategies for NPS –

Allocation of equity

Balancing return and risk through a systematic mix of equity in an investment portfolio is recommended. 

Equity allocation includes strategically distributing the investments between stocks as well as other assets. While equities have higher risks, they even provide higher return potential. Figuring out the correct balance in alignment with financial goals and risk appetite is essential. When considering NPS or the national pension system, a mix of equity allows growth without exposing the investment portfolio to any unnecessary volatility. 

Allocation of assets

Diversification throughout asset classes such as corporate bonds, equity, and government securities for financial stability is essential. 

Asset allocation is the major key to a prudent investment portfolio. By disseminating investments throughout distinct asset classes, like bonds, government securities, equities, etc., one can lower risk. The financial goal is to design a well-rounded portfolio that can counter market fluctuations. In the case of NPS, diversification contributes to stability, allowing the effect of a poor-performing asset to be met by others performing well. 

Active choice

Zeroing in on the active choice in fund management to have control over the asset allocation is vital. 

The active selection allows retail investors to manage actively their allocation within the NPS. It allows flexibility in adjusting the investment portfolio depending on individual preferences and market scenarios. This approach allows the retail investor to respond instantly to the changing financial scenarios, optimising returns and managing the risks better. 

Systematic investment

Periodically contributing to NPS to gain the benefit of rupee cost averaging. 

Systematic investment including making a constant contribution to NPS at periodic intervals. This approach makes the most out of rupee cost averaging, lowering the effect of market volatility. By investing a fixed amount periodically, more units are purchased when prices are low and fewer during high prices. Over time, this approach can result in a lower average cost per unit. 

Tax benefits

Making the most out of tax benefits available as per Section 80CCD and 80C. 

NPS provides attractive tax benefits as per Section 80CCD and Section 80C. Contributions towards NPS qualify for deductions, offering a valuable platform for tax savings. This makes NPS not just an essential retirement planning instrument but even an efficient tax-saving product. 

Regular monitoring

Keeping a watch on the NPS performance and rebalancing when required are essential. 

Periodic assessment involves remaining informed regarding the NPS funds’ performance. If the investment portfolio drifts from the asset allocation, rebalancing is essential. This allows the investment portfolio to stay aligned with the financial goals and risk appetite of investors, adapting to the changing market scenario. 

Flexibility in contributions

Adjusting contributions depending on market scenarios and financial goals. 

Flexibility in contributions permits investors to adapt to the changing financial scenarios. Whether it is increasing contributions during periods of surplus or lowering them during financial constraints, such flexibility allows the NPS to stay a dynamic part of the thorough financial strategy. 

Financial advisor consultation

Seeking advice from financial experts for personalised strategies.

Getting in touch with financial professionals brings a level of expertise to the process of decision-making. Advisors can offer customised strategies depending on an individual’s risk appetite, financial circumstances, and goals. This expertise guidance includes a layer of confidence in investment decisions. 

Choosing fund managers

Choosing fund managers with a proven record for constant returns. 

The fund managers’ selection is an essential decision. Opting for successful and experienced fund managers increases the likelihood of constant returns. Checking the track record of managers assists in making informed choices in alignment with the retail investor’s return expectations and risk appetite level.

Investment in corporate bonds

Factoring in corporate bonds for a balance of return and risk. 

Corporate bonds provide a middle ground between government securities and equities. Including them in the NPS portfolio adds diversity and helps balance risk. Corporate bonds, with their fixed interest payments, contribute to stable income while providing a level of risk higher than government securities but lower than equities.

Government securities

Including government securities for stability in the portfolio.

Government securities are known for stability and safety. Including them in the NPS portfolio provides a secure foundation. While returns might be more moderate than equities, government securities serve as a suitable anchor during times of market turbulence. 

Knowledge enhancement

Continuously educating oneself about market trends and financial instruments.

The financial landscape is dynamic, and staying informed is crucial. Continuous education about market trends, new financial instruments, and changing regulations empowers investors to make informed decisions. A well-informed investor is better equipped to navigate the complexities of the financial world.

Annuity options

Going through distinct annuity options for a steady income after retirement. 

Annuity options with NPS decide the post-retirement income. Going through and understanding such options is essential. Whether it is increasing annuity, fixed annuity, or any other kind, selecting the correct option aligns with the financial goals and needs of retirees. 

Start early

The compounding effect works well when you begin early. Time is essential. 

Time is an essential parameter in investing. Beginning early permits the power of compounding to work well. Even small contributions can grow well over time, offering a considerable retirement corpus. Delaying investments might lead to a loss of crucial compounding time. 

Prudent risk-taking

Assessing risk tolerance and making investment decisions accordingly.

Prudent risk-taking involves a realistic assessment of one’s risk tolerance. Aligning investments with this tolerance ensures that the portfolio remains within the investor’s comfort zone. This approach minimises the emotional impact of market fluctuations.

Understanding charges

Knowing the charges linked with NPS and selecting the options well are essential. 

NPS, one of the best investment options in India comes with specific charges, involving fund management charges. Understanding such charges is important for effective financial planning. Selecting options with considerable charges allows that a considerable portion of the contribution is invested, enhancing returns. 

Long-term horizon

NPS is a commitment, which is long-term in nature and hence keeping a disciplined and patient approach is essential. 

NPS is prepared for the long run. A disciplined and patient approach to investing aligns well with the retirement savings scheme. Avoiding impulsive decisions and remaining committed to the long-run plan contributes to the potential for accumulation of wealth. 

Emergency fund

Preparing a separate exigency fund outside NPS for unanticipated expenditures is essential. 

While NPS is an essential element of financial planning, holding a separate exigency fund is equally necessary. This fund serves as a financial safety net, covering unanticipated expenditures with zero need to dip into the corpus for NPS. 

Optimal withdrawal strategy

Planning the withdrawal phase strategically for tax efficiency.

The withdrawal phase is as critical as the accumulation phase. Planning a strategic withdrawal strategy ensures tax efficiency. Understanding the tax implications and timing withdrawals accordingly minimises the tax burden on the accumulated corpus.

Regular review

Periodically assessing the NPS portfolio to align with the changing goals is essential. 

Financial goals change and so must the investment plan and strategy. Regularly reviewing the NPS portfolio ensures that it remains in sync with changing life circumstances and financial objectives. This adaptability is key to the effectiveness of the overall financial plan.


As Srivinivas and Rekha completed their beverage, they felt completely equipped with the roadmap to browse through the intricacies of NPS. NPS, with its tax benefits and flexibility, provides a strong platform for forming a secure retirement fund. The key, they realised, lies in opting for a diversified and pragmatic approach to investment, ensuring a comfortable and hassle-free retirement life.

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