NPS MSF Framework – Meaning, Rules, Benefits and Usage

Explains NPS MSF Framework, eligibility, migration rules, fund selection, risks, and whether long-term investors should choose 100% equity under NPS.

One of my blog readers recently commented as below after reading one of my blog post related to NPS. Hence, thought to write a detailed post on this.

“Dear Basavaraj,
Thank you for the comprehensive blog on latest NPS exit changes. Could you please write a blog on technical and fundamental analysis on choosing Pension Funds on MSF framework. Few questions:
1. Is this the right time to choose funds from this framework or wait for sometime?
2. If the time horizon is 15+ years, is it good to opt for 100% equity from my current 75%?”

The Pension Fund Regulatory and Development Authority (PFRDA) has introduced a structural enhancement to NPS called the Multi Scheme Framework (MSF). While many discussions focus on returns and fund choices, the real value of MSF lies in how it changes the internal architecture of NPS, who can use it, and how responsibly it should be used.

This article explains the MSF framework in simple language using only official PFRDA and CRA rules, and answers the most common investor questions.

NPS MSF Framework – Meaning, Rules, Benefits and Usage

What is the NPS MSF Framework?

Earlier, an NPS investor could select only one Pension Fund Manager (PFM) for a PRAN and allocate investments among four asset classes — equity (E), corporate bonds (C), government securities (G) and alternative assets (A). If that fund manager underperformed, the entire retirement corpus suffered.

The MSF framework allows a subscriber to choose multiple PFMs simultaneously and assign different asset classes to different fund managers. This means you can diversify not only across assets but also across fund management styles and risk processes.

MSF does not introduce new asset classes, does not change taxation, exit rules, or withdrawal conditions. It only changes how PFMs can be combined.

Is MSF available to all NPS subscribers?

MSF is available only to subscribers under the All Citizen Model and Corporate Model of NPS. Central and State Government employees are not currently eligible because their NPS is governed by service rules.

Existing eligible subscribers can migrate to MSF through the CRA system. This is not automatic and must be initiated by the investor. Migration is treated as a structural change and should not be done casually or frequently.

How is MSF different from the existing structure?

Earlier, the investor bore the entire risk of one fund manager. Under MSF, this risk is distributed.

However, this also increases complexity. MSF is therefore suitable for investors who understand markets and are comfortable monitoring performance periodically. For investors who value simplicity, the existing structure remains adequate.

Understanding asset classes under NPS

The four asset classes remain unchanged. Equity (E) invests in listed stocks and provides growth but high volatility. Corporate bonds (C) invest in high-quality debt instruments and provide stability. Government securities (G) invest in sovereign bonds and offer safety with moderate returns. Alternative assets (A) include REITs and InvITs and are capped at a small percentage.

MSF does not change these risks — it only allows you to choose who manages them.

How should one choose PFMs under MSF? Technical vs fundamental approach

A technical approach focuses on rolling returns, consistency across cycles, volatility and drawdowns. A fundamental approach focuses on portfolio quality, expense ratio, fund manager tenure, and risk management discipline.

A sensible investor uses both. Rolling return consistency with reasonable volatility is more meaningful than short-term top performance.

Is this the right time to adopt MSF or should one wait?

MSF is a structural option, not a market timing decision. There is no “right” or “wrong” time from a valuation perspective. The decision depends on the investor’s ability to manage complexity.

If you are satisfied with your current fund manager and do not want active involvement, there is no urgency to change.

For a 15+ year horizon, should one move from 75% equity to 100% equity?

Equity provides inflation-beating returns but comes with severe interim declines. A 100% equity portfolio can fall by 40–50% in bad markets.

Only investors who are emotionally capable of seeing such declines without panic should consider 100% equity (Such investors are rarest of rare on this earth 🙂 ). For most investors, 60–70% equity provides a better balance.

Advantages and limitations of MSF

MSF reduces fund manager risk and improves diversification. It increases flexibility and accountability.

However, it increases complexity, behavioural risk, and the temptation to chase returns. Over-switching can destroy long-term returns.

Final conclusion

MSF is a positive structural improvement but not a return-enhancing shortcut. It is available only to voluntary and corporate subscribers, not government employees. Existing eligible subscribers can migrate but should do so thoughtfully.MSF rewards discipline, not activity.

The best NPS portfolio is not the one with the highest return, but the one you can hold through every market cycle.