NPS Investment Update: Scheme A to Merge with C and E – Key Insights for Tier I Subscribers

The Pension Fund Regulatory and Development Authority (PFRDA) has announced a major overhaul for National Pension System (NPS) subscribers who previously opted for Scheme A under Tier I (Active Choice). The regulator will merge Scheme A with Schemes C (corporate bonds) and E (equities) to modernize the investment framework and enhance long-term retirement outcomes. This strategic decision aims to provide a more diversified and efficient management of retirement savings, aligning with evolving market practices.

Rationale Behind the Merger

In a communication dated December 13, 2025, the PFRDA explained that the merger stems from a thorough review of Scheme A’s structure and performance. The analysis revealed inherent limitations, including a relatively small corpus and restricted investment options, which hindered diversification and operational flexibility. By integrating Scheme A into the larger Schemes C and E, subscriber funds will benefit from broader and more liquid portfolios. This shift is designed to align investments more closely with long-term retirement goals, offering subscribers improved opportunities for growth and stability.

Benefits for NPS Subscribers

The PFRDA has highlighted several advantages that the merger will bring to NPS subscribers. Firstly, the integration will enhance diversification and stability, as contributions previously allocated to Scheme A will now be part of larger pools under Schemes C and E, thereby reducing concentration risk. Additionally, the larger schemes will provide improved risk-adjusted returns, allowing for greater portfolio management flexibility and more consistent long-term performance. Subscribers will also enjoy higher liquidity, as assets that were previously subject to longer lock-in periods will now be managed in schemes with easier access to funds. This change aligns the NPS investment architecture with recent SEBI-led reforms and modern asset classification standards.

Transition Options for Existing Subscribers

To facilitate a smooth transition, the PFRDA is offering existing Scheme A subscribers a one-time opportunity to switch their accumulated corpus to any other asset class of their choice. This switching window will remain open until December 25, 2025, allowing subscribers to move their funds without incurring additional costs. The switch can be executed in accordance with existing NPS guidelines. Those who do not take advantage of this option within the designated period will have their investments managed under the newly merged framework.

Investment Choices and Future Reforms

Under the NPS common investment framework, subscriber contributions are allocated across four asset classes: Equity (E), Corporate Bonds (C), Government Securities (G), and Alternate Assets (A). Scheme A was initially designed to provide exposure to alternative investments such as Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and other structured products. The merger is part of broader reforms aimed at modernizing the NPS ecosystem, which includes expanding the permissible investment universe and simplifying scheme architecture. The PFRDA encourages subscribers to carefully review their asset allocation and utilize the switching window to realign their retirement strategies effectively.

Observer Voice is the one stop site for National, International news, Sports, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.

Follow Us on Twitter, Instagram, Facebook, & LinkedIn