Why is my NPS balance decreasing? How to fix

Why Your National Pension System Balance Can Go Down

You log into your account to check your retirement savings. You expect to see your money growing, but instead, the number is smaller than last time. Seeing your National Pension System (NPS) balance decrease is frustrating and can make you feel anxious. Did you make a mistake? Is your money disappearing? The short answer is no, but it’s important to understand why this happens.

The main reason your NPS balance falls is because of the stock and bond markets. NPS is not like a bank savings account where your money only goes up. It is a market-linked investment product. This means your contributions are invested in different types of assets. When these markets perform poorly, the value of your investments temporarily drops.

Your NPS money is typically split between three main asset classes:

• Equity (E): These are shares of companies listed on the stock market. They have the potential for high growth but also come with high risk.
• Corporate Bonds (C): This is debt issued by companies. They are generally safer than equities but riskier than government bonds.
• Government Securities (G): These are bonds issued by the government. They are considered the safest of the three asset classes.

When you invest in NPS, you buy 'units' in a fund. The price of each unit is called the Net Asset Value (NAV). If the markets go down, the NAV of your units decreases. You still own the same number of units, but their total value is less. This is what you see as a decrease in your NPS balance.

Example of a Market Dip

Let's imagine you have 1,000 units in your NPS account. The NAV for each unit is 25 rupees. Your total balance would be:

1,000 units x 25 rupees/unit = 25,000 rupees

Now, imagine the stock market has a bad month. The NAV of your units drops to 23 rupees. Your balance would now be:

1,000 units x 23 rupees/unit = 23,000 rupees

Your balance has decreased by 2,000 rupees. You haven't lost any units; their market price has just temporarily fallen.

NPS vs. Fixed Deposits: Understanding the Risk

It helps to compare the National Pension System to a more familiar product like a Fixed Deposit (FD). An FD offers you security. You put your money in, and the bank promises a fixed interest rate. You know exactly how much money you will have at the end of the term. The risk is almost zero.

NPS is different. It is designed for long-term wealth creation for your retirement. To achieve this, it must invest in assets that can grow faster than inflation, like equities. This potential for higher returns always comes with market risk. Your returns are not guaranteed and will go up and down with the market.

Remember this crucial point: Market downturns are a normal part of long-term investing. Your loss is only on paper until you sell your units. If you stay invested, you give the market time to recover and grow your wealth.

Here is a simple comparison to see the main differences:

What to Do When Your NPS Value Drops

Seeing a drop can be scary, but making a rushed decision can hurt your long-term goals. Here are the steps you should take instead of panicking.

1. Do Not Withdraw or Stop Investing: The worst thing you can do is sell your units when the market is low. This turns a temporary paper loss into a permanent real loss. Continuing your contributions means you are buying more units at a lower price, which can lead to higher profits when the market recovers.
2. Review Your Asset Allocation: Check your current investment mix. If you are using the 'Active Choice' option, you decide the percentage in Equity (E), Corporate Bonds (C), and Government Securities (G). Is this mix still right for your age and risk tolerance? If you are getting closer to retirement, you might want to reduce your equity exposure and move funds to safer government securities. NPS allows you to change your scheme preference twice per financial year.
3. Check Your Pension Fund Manager's Performance: NPS gives you a choice of several Pension Fund Managers (PFMs). While all are affected by market movements, some perform better than others over the long term. You can check the historical performance of all PFMs on the official PFRDA website. If your chosen PFM is consistently underperforming compared to others, you might consider a change. You can change your PFM once per financial year. Here is a useful resource for official data: Pension Fund Regulatory and Development Authority (PFRDA).

A Long-Term Strategy for Your National Pension System

Preventing panic starts with having the right strategy from day one. The National Pension System is a marathon, not a sprint. Market ups and downs are just small bumps on a very long road.

Choose the Right Investment Option for You

NPS offers two main choices for managing your investments:

• Active Choice: You have full control. You can decide the exact percentage to allocate to E, C, and G assets (with a maximum of 75% in Equity). This is suitable for investors who understand the market and want to manage their portfolio actively.
• Auto Choice: This is a hands-off approach. The asset mix is automatically adjusted based on your age. As you get older, the allocation to risky equities decreases, and the allocation to safer bonds increases. This is an excellent option for those who don't want to manage their investments.

Choosing the right option based on your financial knowledge and risk appetite is the best way to handle market volatility without stress.

Stay Disciplined and Be Patient

The magic of NPS comes from disciplined investing over many decades. Short-term drops are scary, but history shows that markets recover and trend upwards over the long run. By staying invested, you allow your money to benefit from the power of compounding. Small, regular contributions grow into a large corpus over 20, 30, or even 40 years. Don't let a few bad months derail a multi-decade retirement plan.

It's wise to review your NPS account once a year, not every day. A yearly check-in is enough to ensure your strategy is on track and your PFM is performing well. Checking it too often can lead to emotional decisions based on short-term market noise.