Dealing With NPS In 2026 - II : Understanding The Multiple Scheme Framework

In last week's post, we looked at the applicable taxability and exit rules of the National Pension System (NPS). These are in light of the regulatory changes notified in December 2025. Another important change that came about last year was the introduction of the Multiple Scheme Framework (MSF). And the MSF would be the focus of today's discussion. I will talk about what it is, how it works and the right way to use it.

What Is The Multiple Scheme Framework (MSF)?

The MSF is essentially an alternate way to invest in the NPS. It allows subscribers to hold multiple schemes under a single PRAN (Permanent Retirement Account Number). It is currently available exclusively to non government subsctibers. It is available under the Corporate and All Citizens models. Access to the MSF may be extended to government subscribers in the future.

Key Features Of The MSF

The MSF schemes have been introduced under Section 22 of the NPS Act. Existing NPS schemes in operation prior to the introduction of MSF will now be known as common schemes. There are low risk, moderate risk and high risk schemes available within the MSF. MSF schemes apply to both Tier 1 and Tier 2 subscribers. Tier 1 schemes have a mandatory 15 year lock in period. Tier 2 schemes are open ended. But they do have an optional 15 year lock in.

MSF offers targeted schemes for self employed professionals, corporate employees and gig workers. This implies that the MSF allows for greater customization relative to common schemes. Existing exit rules applicable to common schemes shall also apply to MSF schemes. This currently implies a lumpsum component of 60% and annuity component of 40% after the lock in of 15 years. This may very likely change to 80% lumpsum and 20% annuity in the near future. The key features of the MSF and differences relative to common schemes are laid out in the graphic below.

Switching Schemes Within The MSF

The rules for switching schemes within a Tier 1 MSF account are mainly a function of the 15 year lock in period. This makes switching schemes in a Tier 1 MSF account quite complex. During the lock in period subscribers to a Tier 1 MSF scheme are only allowed to switch to the common scheme. Switching between MSF schemes is only allowed outside of the lock in period. This makes a Tier 1 MSF account quite rigid.

MSF schemes held in a Tier 2 account may be a more viable option. There is no lock in period associated with a Tier 2 account. This means a Tier 2 MSF account would operate similarly to a mutual fund. This offers greater flexibility for shorter term goals. But Tier 2 accounts do come with one major drawback. Gains in a Tier 2 account would be taxed at slab rates.

The Truth About 100% Equity Schemes Within The MSF

High risk schemes in the MSF allow subscribers to hold 100% in equity. This seemingly positions the MSF as a stronger, more flexible, growth oriented tool for wealth creation. But there is more to this than meets the eye. Equity exposure in the MSF is offered through equity mutual funds. All mutual funds hold some amount of cash. Therefore the effective exposure to equity in such schemes would be capped at 90-95%. Young investors may wish to invest in 100% equity schemes because age is on their side.

But such a notion is impractical. In theory, a 100% allocation to equity may be suited to an investor with a purely aggressive risk profile. But in reality most individuals would have balanced risk profiles. Therefore going beyond a 60% allocation to equity may not be warrented in most cases. The reasons behind this are explained in detail in an earlier article Why 60 And Equity Are An Ideal Match.

Also equity exposure within the NPS has its own drawbacks. The NPS is therefore more useful when used as a debt product. An allocation of 85% bonds and 15% equity is ideal for most individuals. This is similar to the default asset allocation for government employees in the NPS. I will explain why equity should be avoided within the NPS in more detail through my next article.

Is The Multiple Scheme Framework A Game Changer For The NPS?

The MSF has been billed as a major upgrade to the NPS. The MSF does have its benefits. But in the grand scheme of things it does very little to change things significantly for investors. Tier 1 MSF accounts would be quite rigid. This is mainly down to the 15 year lock in period. They also come with limited flexibility with regard to switching between schemes. Tier 2 MSF accounts may be more viable. But investors must be okay with their gains being taxed at slab rates.

Should Investors Switch To The MSF?

There is absolutely no need to be in a tearing hurry to switch into the MSF. Existing NPS subscribers who are currently in common schemes can safely stay there. Those who have never opened an NPS account need not change their minds because of the MSF. This is especially true for salaried professionals. This is because most salaried professionals today aspire to retire before 60. The MSF therefore only has a limited variety of use cases. Self employed professionals and freelancers who are confident of working until 60 or beyond may consider the MSF. And even in such cases the MSF is not a necessity.