Return on NPS schemes: Investment in equity outperforms others

National Pension System (NPS) offers the option of multiple pension fund managers to subscribers, and also the four asset classes — equity, corporate debt, government bonds and alternative investment funds — to choose from. At the outset, the subscriber is meant to select a fund manager, and then one of the investment options, which eventually determines the portfolio composition.

So, it is vital for NPS subscribers to know the performance of not only different fund managers, but also of different asset classes so as to comprise a robust and high-performing portfolio.

Based on the past data, equity allocation in NPS fund schemes has outperformed other asset classes such as corporate bonds, government securities and alternative investment funds.

One-year returns

If we look at the data closely, we would realise that the past one year returns of Tier 1 equity allocation range between 8.81 percent and 10.79 percent based on the pension fund manager (PFM), as on May 20, 2022.

For instance, HDFC Pension Management posted a return of 8.81 percent, while LIC Pension Fund gave a return of 10.79 percent.

For the uninitiated, there are two types of NPS accounts - Tier I and Tier II.

Tier I NPS investment is long-term and hence, meant for the retirement purpose, consequently, the amount cannot be withdrawn until retirement. On the contrary, Tier II NPS account which is voluntary savings account.

The similar pattern of good returns was seen in the Tier-II account as well where one-year return ranges between 8.07 percent (UTI Retirement Solutions) to 10.47 percent (LIC Pension Fund) based on the choice of the fund manager.

On the other hand, other asset classes gave muted returns. Sample this. The average one-year return on the allocation to fixed income instruments was 1.31 percent to 2.73 percent, as on May 20, 2022. Likewise, the average one-year return on the allocation to government securities was in the range of -0.17 percent to 0.82 percent.

At the same time, alternative assets such as REITs & InVITs gave healthy returns in the range of 6.74 percent to 11.33 percent.

(Source: npstrust.org.in)

 Three-year returns

A similar pattern was seen in three-year returns as well. Average returns for equity allocation to NPS schemes in Tier I category were in the range of 10.82 percent (SBI Pension Funds) to 12.72 percent (HDFC Pension Management) based on the choice of the fund manager.

At the same time, three-year equity returns in Tier-II NPS scheme were in the range of 10.88 percent to 12.63 percent, based on which pension fund manager you have zeroed in on.

On the other hand, the average three-year return for fixed income instruments was in the range of 7.09 percent to 8.68 percent, for government securities — the average return was 7.04 percent to 7.74 percent, and for alternative assets, it was 6.52 percent to 11.65 percent, as on May 20, 2022.