Investors in mutual funds frequently compare their funds' performance to that of other fund companies' similar schemes. In the case of NPS, however, the majority of investors do not do so. Previously, indexing rules caused NPS schemes to provide comparable results. However, as indexing constraints have been gradually removed, fund managers have begun to produce a wider range of returns. As a result, the performance of NPS funds must be reviewed on a regular basis.
There is currently sufficient historical data to analyse and compare the performance of your NPS funds to that of other fund managers. You can simply see if you need to replace your NPS fund management based on this comparison.
How often should you check on the performance of your NPS funds?
According to experts, little underperformance in your NPS fund each year might compound to massive underperformance over time
These assessments, like other investing alternatives, might be based on specific occurrences. While you do not need to respond to every piece of news, you should assess whether any major changes have occurred, such as a change in fund management, a change in fund management style, and so on. As of right now, this isn't a major concern because such instances are quite uncommon in NPS.
How to Conduct a Review of your NPS funs?
Because NPS is based on NAV and is subject to market forces, its review process may resemble that of mutual funds. First, check to determine whether your fund manager is underperforming the competition. This comparison should be based on a relatively lengthy time, such as 1-3 years, rather than short term returns of 1-3 months. The goal of this exercise is to help you determine whether or not you should examine your NPS manager. Please keep in mind that what we're advocating is only a review, not a change, as a result of one year of poor performance.
When you realise your fund manager is underperforming, the next step is to investigate why and if you believe you lack the skills to conduct such a review, you should seek the assistance of an investment professional.
You cannot select separate managers for each asset type
The primary advantage of NPS is that switching from one fund manager to another does not result in tax incidence. Because of the open design of NPS, moving between fund managers will be tax neutral.
However, NPS imposes a limitation in this regard: you cannot have separate fund managers for different asset classes.
Examine asset allocation as well
Asset allocation reviews, like yearly fund manager reviews, are required on a regular basis. How often should this be done?
However, NPS imposes constraints on this, allowing you to switch between schemes just twice a year. Experts recommend switching between schemes twice a year since asset allocation is crucial throughout the accumulation period
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