For years, the National Pension System (NPS) was seen as the "reliable but quiet" sibling in the world of Indian investments. It was the account you opened for a tax break and then largely forgot about until retirement. People often whispered about its "strict rules" and "limited equity," viewing it as a safe but slow way to build a nest egg.
However, as we move through late 2025, the NPS landscape has undergone a radical transformation. With the launch of the Multiple Scheme Framework (MSF), the PFRDA has effectively shattered the old glass ceilings.
Yet, with great change comes great confusion. If you’ve been hearing rumours that the NPS is still capped at 75% equity, or that you’re stuck with one fund manager forever, you’re looking at an outdated map. It’s time to clear the air. Let’s debunk the most common myths and uncover the high-performance reality of the modern NPS scheme.
Myth 1: "The NPS Still Caps Equity at 75%"
This is perhaps the biggest misconception in the market today. For a long time, if you chose the "Active Choice" path, you were told you couldn't put more than 75% of your money into stocks (Asset Class E).
The Reality: Under the new Multiple Scheme Framework, the "75% rule" has been side-lined for those who want more growth. The PFRDA now allows specialized schemes that offer up to 100% equity exposure. This puts the NPS on par with aggressive mutual funds, allowing young investors to capture the full power of the Indian stock market for their retirement.
Myth 2: "I Have to Give All My Money to One Fund Manager"
In the traditional version of the NPS, you had to pick one Pension Fund Manager (PFM) to handle your entire portfolio. If you liked PFM A’s equity performance but preferred PFM B’s handling of government bonds, you were out of luck.
The Reality: The Multiple Scheme Framework has introduced "Manager Diversification." You can now hold multiple schemes from different fund managers under a single PRAN (account). This means you can pick the "Best of Breed" managers for different asset classes, significantly reducing the risk of one manager underperforming.
Myth 3: "NPS is Only Good for the ₹50,000 Tax Benefit"
Many people view the New Pension Scheme simply as a tool to save an extra ₹50,000 under Section 80CCD(1B). Because of this "tax-saver" label, they ignore the long-term wealth creation potential.
The Reality: While the tax benefits are great, the real strength of the NPS is its incredibly low Expense Ratio. Most mutual funds charge between 1% and 2% annually to manage your money. The NPS (even with the slightly higher MSF fees) remains significantly cheaper. Over 30 years, that 1% difference in fees can result in a corpus that is 20-30% larger due to the magic of compounding.
Myth 4: "The Money is Completely Locked Until I’m 60"
The fear of "frozen funds" often keeps young investors away from the New Pension Scheme. People believe they can't touch a paisa if they face an emergency.
The Reality: The NPS has become surprisingly flexible. You can make "Partial Withdrawals" (up to 25% of your own contributions) for specific reasons like:
- Higher education for children.
- Marriage of children.
- Purchase or construction of a residential house.
- Medical Treatment or Hospitalization.
Furthermore, Tier-II accounts remain completely flexible, allowing you to withdraw money at any time, much like a savings account but with better growth potential.
Myth 5: "Active Choice and the Multiple Scheme Framework are the Same"
Since both allow you to choose where your money goes, many investors think the new MSF is just a fancy name for the old Active Choice.
The Reality: They are fundamentally different architectures.
Active Choice is a single-scheme setup where you adjust the percentage "knobs" of E, C, and G.
MSF is a modular setup where you can buy entirely different "blocks" of schemes.
MSF also introduces a 15-year vesting period for those specific units, ensuring that the aggressive 100% equity strategies have enough time to weather market cycles.
A Strategy for 2026 and Beyond
Now that we’ve cleared the myths, how should you actually use the NPS scheme? The most successful investors are adopting a "Core and Satellite" approach:
- The Core (Active/Auto Choice): Keep the bulk of your retirement savings here for steady, low-cost growth with a balanced mix of bonds and stocks.
- The Satellite (MSF Schemes): Use the Multiple Scheme Framework to add "Alpha" to your portfolio. This is where you can opt for 100% equity or high-risk strategies across asset classes to boost your overall returns.
Why the "New" in New Pension Scheme Matters Now
The 2025 updates aren't just minor tweaks; they represent a philosophy shift. By offering more choice, up to 100% equity, and manager diversification through the Multiple Scheme Framework, NPS has become more flexible for voluntary non-government subscribers.
Don't Let Old Myths Block Your Future
The National Pension System is no longer the restrictive, one-size-fits-all product it used to be. By debunking these misconceptions, it becomes clear that NPS—especially with the Multiple Scheme Framework—is now one of the most powerful, flexible, and cost-effective ways to build retirement wealth in India.
Whether you are a conservative saver or an aggressive market enthusiast, there is now a scheme option in NPS designed specifically for your risk profile.
