3 new NPS rules that transform it into a mutual fund competitor

National Pension System (NPS) has undergone major changes in 2025, transforming it from just a retirement tool to a strong rival of mutual funds in India. Earlier, NPS was seen mainly as a tax-saving and pension scheme with limited flexibility and equity exposure.

1. 100% Equity Exposure in Tier 2

NPS Tier 2 now offers full 100% equity exposure, allowing investors to create a pure equity portfolio just like mutual funds. This tier has no lock-in or withdrawal restrictions, giving complete flexibility and easy liquidity, making it much more attractive for wealth creation.

2. Ultra-Low Cost Structure

NPS charges a very low fund management fee of about 0.03% to 0.09%, compared to mutual funds that charge between 0.5% and 1.5%. This significant cost advantage means better compounding and potentially higher returns for long-term investors.

3. Simplified Withdrawal Rules

Withdrawal rules in NPS are now easier and more practical. Tier 1 allows partial withdrawals for purposes like children’s education, medical emergencies, and home buying. Unlike before, the process is now fully digital and frictionless. Tier 2 has always been flexible with no lock-in, making it a direct alternative to mutual funds.

Together, these three major changes transform NPS from a traditional pension scheme into a modern, low-cost, and highly flexible investment platform that competes strongly with mutual funds for wealth creation in India.