Pension Funds and the National Pension System Trust (Section 23)

Pension funds invest the money of NPS subscribers; the National Pension System Trust holds the resulting assets for the subscribers' benefit and watches over the funds. The separation of these two roles, management by one body and ownership on trust by another, is central to the safety of the NPS. Section 23 of the PFRDA Act deals with pension funds, while the NPS Trust is defined in Section 2 and governed by regulations under Section 52.

1. Pension Funds (Section 23)

Registration (Section 23(1)): the Authority may, by granting a certificate of registration under Section 27(3), permit one or more persons to act as a pension fund.
At least one Government company: at least one of the pension funds must be a Government company, as defined in company law, that is, a company in which the Government holds at least fifty-one per cent of the paid-up share capital.
Conduct (Section 23(2)): every pension fund must function in accordance with the terms of its registration and the regulations.
Definition (Section 2(1)(l)): a pension fund is an intermediary registered to receive contributions, accumulate them and make payments to subscribers as specified by regulations.

⚠ Note

The requirement of at least one Government company reflects the concerns raised in Parliament when the Bill was debated, that subscribers, particularly Government employees, should have the option of a publicly owned fund manager. Pension funds sponsored by SBI, LIC and UTI have managed the default schemes for Government employees since the beginning of the NPS.

2. How Pension Funds Work

Sponsors: each pension fund is a company set up by a sponsor, usually a bank, insurer or asset manager, which must meet PFRDA's requirements on net worth, track record and fitness.
Number: there are about ten pension funds, sponsored by public and private financial groups. Since 2019, PFRDA has registered pension funds on an ongoing basis rather than only through periodic selection rounds.
Investment: each pension fund invests the money allotted to it in the schemes chosen by subscribers, strictly within the investment guidelines issued by PFRDA.
Units and NAV: subscribers hold units of each scheme. The pension fund calculates a daily net asset value (NAV), so the value of each subscriber's holding can be known at any time.
Fees: pension funds earn an investment management fee within ceilings set by PFRDA, which fall as assets under management grow. The fees are among the lowest charged for any managed investment in India.
Governance: pension funds are governed by the PFRDA (Pension Fund) Regulations, 2015, which deal with registration, capital, governance, conflicts of interest, disclosures, audit and the duties of the fund.

3. Duties of Pension Funds

Fiduciary duty: to invest prudently and solely in the interests of subscribers, not of the sponsor or its group. Investment of the funds within the prescribed pattern is described in PFRDA's guidelines as the fiduciary responsibility of the pension fund.
Avoiding conflicts: limits on investment in sponsor group companies and disclosure of group companies prevent the use of subscriber money to support the sponsor's businesses.
Disclosure: publishing NAVs, portfolios and performance in the standardised form required by PFRDA, so that subscribers can compare funds.
Voting: exercising voting rights in companies held, according to a published voting policy, in the subscribers' interest.
Reporting: regular reporting to the NPS Trust and PFRDA, and audit of the schemes.

4. The National Pension System Trust

Definition (Section 2(1)(j)): the Board of Trustees established for holding the assets of subscribers for their benefit.
Origin: the NPS Trust was set up by the Interim PFRDA in 2008, under the Indian Trusts Act, 1882, and now functions under the PFRDA (National Pension System Trust) Regulations, 2015, made under Section 52.
Ownership: the assets of the NPS, that is the securities bought by pension funds and the funds with the Trustee Bank, are held in the name of the NPS Trust, on trust for subscribers. A 2026 amendment to the regulations spelled out that the Trust's assets include subscriber assets held in its name, funds with the Trustee Bank, and all other assets in its books.
Functions: monitoring pension funds' compliance with investment guidelines and regulations; overseeing the Trustee Bank and custodian; evaluating performance; and protecting subscribers' interests.

Why a trust?

Holding the assets in a separate trust means they do not belong to the pension funds. If a pension fund fails, is wound up, or loses its registration, the subscribers' assets are not available to its creditors and can be transferred to another fund. This is the same principle that protects mutual fund investors, whose assets are held by a trustee and custodian separately from the asset manager.

5. Proposed Separation of the NPS Trust

The NPS Trust is at present closely tied to PFRDA, which makes the regulations under which it works and influences its board. It has long been proposed that the Trust should be separated from the regulator, so that the body supervising the funds is independent of the body making the rules. In April 2026, it was reported that the Government was considering an amendment to the Act to separate the Trust, possibly as a charitable trust or a company, along with an increase in the foreign investment limit. Whether such an amendment has been made should be checked against current sources.

6. Questions Arising

Can a subscriber sue a pension fund for poor returns?

Not merely because returns are low. Market risk is borne by the subscriber. A pension fund is accountable if it breaches the investment guidelines, its fiduciary duty or the regulations, in which case PFRDA may take action, and a subscriber may pursue a grievance.

What happens if a pension fund's registration is cancelled?

The subscribers' assets, held by the NPS Trust through the custodian, are transferred to another pension fund chosen by the subscriber or designated by PFRDA. Subscribers do not lose their savings, though the transfer must be managed to avoid disruption.

⚠ Key point

Under Section 23, the Authority registers pension funds under Section 27(3); at least one must be a Government company, and all must act according to their registration and regulations. Pension funds, set up by sponsors, invest subscribers' money within PFRDA's investment guidelines, issue units at a daily NAV, charge capped fees, and owe a fiduciary duty to subscribers, with limits on sponsor group investment. The NPS Trust (Section 2(1)(j)), set up in 2008 and governed by the NPS Trust Regulations, 2015, holds the assets for subscribers and monitors pension funds, the Trustee Bank and custodian, so subscriber assets are insulated from a fund's failure.

7. Related Topics and Provisions

Key definitions (Section 2)
Investment guidelines for pension funds
Foreign ownership and the bar on offshore investment (Sections 24 and 25)
Eligibility and registration of intermediaries (Sections 26 and 27)
Other intermediaries: Trustee Bank, custodian and retirement advisers