NPS returns vary across funds and fund managers, how and when to review your investments

NPS subscribers should assess their funds and fund managers regularly, because even minor differences now will amplify in the long-term, obviously due to the power of compounding. So experts suggest that you should conduct annual reviews of your NPS portfolios also like you do for your mutual fund investments.

Just like other investment options, these reviews can also be based on specific events. While there is no need to react to all news breaks, you need to review if there is any fundamental change, including a shift in fund management, change of management style, among others events, even though such incidents are very rare in case of NPS.

Since NPS is also NAV driven and linked to market forces, its review process can be similar to that of mutual funds. First, see whether your fund manager is underperforming others. This comparison should not be based on short term returns of 1-3 months, but on a reasonable long period like 1-3 years. This exercise will help you decide whether you should review your NPS manager or not. This is not to mean that you should just shift because of a year of underperformance, but certainly review it.

If at all you come to realise that your fund manager is underperforming, the next step is to get into its reasons. Could this be attributed to a particular strategy? Get a financial planner or investment advisor if you feel unsure doing this yourself.

Tax efficiency in such fund manager shifts is one of the biggest advantages of NPS. While shifting from one mutual fund to another will result in a tax incidence, switching between fund managers will be tax neutral in NPS due to its open architecture. However, NPS places a restriction here— you can be with only one fund manager.

Just like the annual fund manager reviews, experts also recommend overall asset allocation reviews on a regular basis. How frequently should one do that? Or rather, how often can you do that? NPS has the restriction in place that you are allowed to shift between schemes only twice a year. So twice a year you must review and if needed, carry out the shifts between schemes.