NPS has only 8% adoption rate: Pension manager explains why

DSP Pension Fund’s Rahul Bhagat discusses the steps needed to attract investments in NPS, factors one must consider while investing and how investors should make the choice between auto and active asset allocation. The National Pension System (NPS) is fast gaining ground as a retirement planning tool in India. Yet, actual adoption remains low, as only 7-8 per cent of corporate sector employees have enrolled. According to DSP Pension Fund’s CEO Rahul Bhagat, this gap stems from onboarding hassles, low distributor incentives and limited fund manager fees, all of which make the product hard to push and scale. In this interview, Bhagat highlights the untapped potential of NPS and why the right ecosystem could turn it into a Rs 50 lakh crore industry. He also shares insights on DSP’s value-driven investment approach, what factors should first-time NPS investors consider while picking a pension fund manager and how they should make the choice between auto and active asset allocation. NPS offers both active and auto choices for asset allocation. How should investors evaluate which option is better suited for their retirement goal? It all depends on what your needs are. Many savvy customers who understand the nuances of the market can choose an active portfolio. For individuals who struggle to determine the optimal asset allocation and lack the time or expertise to adjust their portfolio over time in response to market conditions, I would recommend auto-allocation as the right choice. Within that, we also have today a Balanced Fund, which is a new fund positioned between auto and active. The only difference between auto and balanced is that the allocation to equity decreases, not from age 35, but from a later age. What happens in asset allocation is that today, if you start with an aggressive option, your equity component starts decreasing from age 35 until the time you retire. So, it's an auto-allocated plan, and automatically, more of the money is going towards debt, and your equity component slowly starts decreasing from age 35. Now, there was a lot of need or demand from customers who said that it's an early age. That's when the Bal