The National Pension System (NPS), a government-backed small savings scheme for retirement and open for all Indian citizens, invests in four asset classes in the market: equity, government securities, corporate debt, and alternative investment funds to generate returns for investors.

NPS offers two investment modes, auto and active, and the option to choose the pension fund manager. This pension scheme is open to all Indians, including non-resident Indians.

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Unlike the Senior Citizen Savings Scheme (SCSS), National Saving Certificate (NSC), bank fixed deposits, etc., NPS doesn’t pledge guaranteed returns; instead, the gains are connected to the performance of the invested assets. This market-linked scheme allows investors to choose up to three fund managers based on their track record and expertise for its four asset classes.

Let’s explore the top three performers over the past year among pension fund managers in the NPS Tier I account. Like other investment tools, NPS also has a Tier II account that is solely for wealth-building.

Equity (Scheme E): 

NPS’s Scheme E, or equities, delivered 31.52 per cent to 38.53 per cent returns in one year as of April 30, 2024. Data from NPS Trust shows Tata pension fund manager (PFM) generated the highest returns at 38.53 per cent, followed by UTI Retirement Solutions (UTIRSL) and ICICI PFM at around 36.6 per cent against the benchmark’s 36.25 per cent. Kotak PFM delivered 34.78 per cent in the same period.

Government Securities (Scheme G):

In one year, government securities returned 7.14 per cent to 7.49 per cent against the benchmark return of 7.29 per cent. Though the returns are almost similar, Kotak, UTI, and SBI grew the most at 7.49 per cent, 7.47 per cent, and 7.44 per cent, respectively.

 Corporate Bonds (Scheme C):

NPS’s annual returns in this category of assets ranged from 6.88-7.59 per cent against the benchmark returns of 7.25 per cent. HDFC PF delivered the highest returns, at 7.59 per cent, followed by ICICI PF at 7.46 per cent and Aditya Birla PF at 7.39 per cent.

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 Alternate Investments (Scheme A):

NPS pension fund managers invest up to 5 per cent of the portfolio in alternative investment funds. The assets in this category include Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and bonds. In this category, the one-year returns ranged from 6.88 per cent to 10.82 per cent. SBI PF generated the highest returns at 10.82 per cent, followed by Kotak PF at 9.93 per cent and Tata PF at 9.04 per cent. There is no benchmark for this class.

In conclusion, besides the opportunity to save money for retirement, the NPS Tier I account holders are also eligible for tax deductions up to Rs 2 lakh in a financial year for contributions to the scheme. The Pension Fund Regulatory and Development Authority (PFRDA), which governs NPS, has introduced several changes in the scheme of late for the ease of the subscribers.