The National Pension System (NPS) aims to provide financial security to subscribers in old age. It offers tax benefits and is open to all resident and non-resident Indian citizens. NPS invests in equity, government securities, corporate debt assets and alternative investment funds, making it attractive to people with different risk tolerance levels. It also offers flexibility in selecting pension fund managers (PFMs) for various investment categories, withdrawal and investing options, or selection of annuity service providers (ASPs), etc.

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How Much Has Your Investment Grown Over The Year?

Over the past year, the markets have risen sharply, and so have the NPS returns. Of the 11 pension fund managers, all have given over 30 per cent equity returns in a year.

Return In Equity Scheme:

Compared to the benchmark return of 35.44 per cent as of June 21, 2024, in the equity category, the average return of PFMs is 34.45 per cent. Of the 11 PFMs, Tata PFM generated the highest return at 40.20 per cent in a year, followed by UTI Pension Fund and ICICI Pru PFM at 37.79 per cent and 36.87 per cent, respectively. At this average annual return, your investment would double in two years.

Although short-term returns do not matter in a long-term investment instrument, for someone who wants to enter the scheme at this point, it is useful to check the returns and select a fund manager who has consistently generated returns.

Return On Corporate Debt And Government Bond Scheme:

In the debt segment, HDFC PFM gave the highest return at 7.89 per cent, closely followed by Kotak PFM with 7.67 per cent and ICICI Pru PFM with 7.65 per cent over one year as of June 21. In the government securities segment, Kotak PFM generated 9.23 per cent, UTI 9.21 per cent, and HDFC PFM 9.10 per cent in a year. Considering the average return of 7.47 per cent in corporate debt and 8.97 per cent in government bond schemes, the amount invested in corporate debt would double in around nine and a half years and government bonds in around eight years.

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Conclusion

So, appropriately allocate the portfolio between debt and equity to get the best benefit from the NPS. Investors can invest a maximum of 75 per cent in equity in both the Active and Auto choices of investment up to their respective age limits, and the remaining 25 per cent must be invested in debt and other securities.For a well-versed investor, choosing the Active investment option, which allows a maximum of 75 per cent in equity up to 50 years of age, may be useful compared to the Auto option, where the highest equity allocation (75 per cent) is allowed only until 35 years of age. Recently, the Pension Fund Regulatory and Development Authority (PFRDA) announced the launch of a balanced life cycle fund, where the maximum equity allocation in auto choice is expected to increase to 45 years of age.So, evaluate the returns and their consistency while reviewing the portfolio to build the required corpus.