The National Pension System (NPS) is a government-supported long-term retirement savings plan investing in equity, debt, and alternative investment instruments and managed by an impaneled group of fund managers for each asset class. Data from the NPS Trust, the registered owner of all assets under the NPS ecosystem, show that the equity fund managers delivered superior returns in one year compared to the rest of the categories as of October 30, 2023.

NPS Equity Funds

Of the 10 fund managers in the equity segment in NPS, ICICI, Kotak, and Max Life pension funds delivered 10.55, 10.39, and 9.14 percent annual returns, respectively, higher than the benchmark 7.88 percent. However, in five years, Kotak bettered its performance over ICICI at 14.85 percent compared to the latter’s 14.46 percent. The HDFC pension fund, on the other hand, returned 14.39 percent in the same period. It shows Kotak could easily beat the benchmark’s 14.55 percent in the same period, while ICICI and HDFC missed it by a whisker.

NPS Debt/G-Sec Funds

When it came to government securities (G-Secs), UTIRSL delivered the maximum one-year returns at 8.16 percent, followed by the SBI Pension Fund at 7.96 percent and Aditya Birla Pension Fund at 7.92 percent per annum compared to the benchmark 8.18 percent returns. It shows that no one could match or outperform the benchmark returns. This asset class also has 10 fund managers under the NPS architecture. In the five years, the LIC Pension Fund grew the highest at 8.99 percent annually, followed by HDFC and Kotak at 8.60 percent and 8.58 percent, respectively, easily surpassing the benchmark’s 8.03 percent returns. This category of schemes invests in secured avenues like G-Secs, state development loans (SDLs), etc.

NPS Corporate Bond Funds

This segment has only two fund managers: SBI and LIC pension funds. LIC returned 7.85 percent in one year and 9.30 percent in five years compared to the benchmark 7.97 percent and 9.40 percent for the same periods. SBI’s one-year and five-year returns were 7.74 and 9.06 percent, respectively.

NPS Alternative Funds

Alternative funds invest in real estate investment trusts (REITs), mutual fund overnight schemes, liquid funds, etc., but the exposure is limited to 5 percent. This asset class has been volatile. For example, few pension funds saw negative returns in one year, while others gave over 6 percent returns. In five years, the returns ranged from 5.08 percent in UTIRSL to 9.09 percent in SBI. This segment currently may not look very encouraging for senior citizens.

What to Consider Before Selecting a Fund Manager?

While returns are essential, any plan must align with your risk-taking ability and goals. This, in turn, will determine your allocation in equity, G-Secs, bonds, etc. Besides returns, one should check the scheme’s consistency in performance. The Pension Fund Regulatory and Development Authority (PFRDA) has allowed investors to choose their fund managers for different asset classes, giving them more room in decision-making.

Kurian Jose, CEO, of Tata Pension Management, offers a word of caution: “Past performance records may not predict future returns and should not be the only yardstick to evaluate preferred fund managers (PFMs). NPS is a long-term retirement goal product; hence, evaluate and choose fund managers with a long-term view considering the fund house credentials, pedigree, (and) investment philosophy along with the potential to generate stable and consistent returns over a long period.”

NPS offers two investment options: auto and active. People familiar with the market generally choose the active option to manage their portfolio; those without expertise select the auto option. However, it allows you to invest up to 75 percent in equity only up to 35 years whereas in the active mode, the same equity proportion can be kept up to 50 years of age. Also remember that in the auto option, one must gradually reduce the equity exposure in NPS after 35 years of age.