Should You Get Multiple Fund Managers For NPS?

A recent change has been made in the National Pension System rules, whereby investors can choose different fund managers for different asset classes. This gives a choice to the investor to select multiple fund managers if they think this will give them better results, but at the same time this can also increase the complexity of the investment.

This is why one has to tread with caution while making the choice, in terms of whether they should go in for different fund managers or stick to a single one.

The conditions related to the choice of the fund manager for the NPS has been changed and one has to look at the details closely. Currently, when an investor puts their money into the NPS, then they select the fund manager and if its the active choice, then they need to decide the allocation that they would like across the various asset categories, like equity, corporate bonds, government securities and alternative assets. Under the passive choice, the allocation is made and changed according to the age of the investor, but the investor still needs to select the fund manager. The prevailing option allowed the selection of only a single fund manager across all asset classes.

The new choice has to be first understood from the point of applicability. One important point is that this is applicable only for the active choice option, so the investor can choose multiple fund managers only in this option and not the passive option. The other is that a maximum of three fund managers can be chosen and the option is not available for the alternative asset class selection. This means that the investor can also select one or two fund managers, based on their need because three fund managers is the upper limit. If you are a new investor, then the choice of multiple fund managers will be available only after the completion of three months from the date of the investment.

The main question for the investor is whether they should consider using the multiple choice of fund managers option. It has been seen that there is a difference in the performance of the various fund managers. Some fund managers are doing better in equity as compared to the debt options, while some others are doing well in debt and this order keeps changing. So, on the face of it, there might be a good reason for the investor to choose different fund managers, but they need to be very careful here. Past performance is no indication of the future and just looking at the best fund manager who has performed well in the past will not ensure that they are going to get a strong performance going ahead. This could end up in a situation, where the investor is just chasing performance without much to show for it. The better way to go about it would be to start with a fund manager that is managing well across the three options, but if they find the performance lacking in one of the asset classes, then they can change it to a better fund manager for that specific asset class. This would ensure more stability in performance over a longer time period.

The investor has to understand that the NPS is a long term product, where the time of the investment will extend to decades. This requires a long term approach and for this there should not be a feeling of being left out that leads to multiple changes, that keep taking place regarding the management of the funds. Making changes only when required and that too when there is a sharp difference in the performance would be the right way to approach this issue. It should also be easy to manage the investment because multiple choices, along with constant changes can make the administration also very difficult, which needs to be avoided.

Arnav Pandya is founder of Moneyeduschool