How NPS Tier 1 Scheme Has Outperformed Equity Mutual Funds?

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oi-Vipul Das

| Updated: Tuesday, April 20, 2021, 12:00 [IST]

In the year to March 31, the National Pension System (NPS) Tier-1 scheme, which mostly invests in equity market securities, returned up to 74.34 percent in the last 1 year. The National Pension System (NPS), which provides a variety of funds based on an investor’s risk tolerance, is one of the most widely used pension plans for the investors. Usually, the fund operates in three asset classes: equity (E), corporate bonds (C), and government securities (G). The influence of the BSE Sensex’s 68.1% increase in FY21 can be seen through equities, and all NPS pension funds in this class have delivered comparable results. NPS Scheme E’s benchmark 5-year return is close to 14.79 percent, and Scheme E under NPS Tier I Account has returned over 70% in the last year. It corresponds to the spike in the Indian stock market. LIC Pension Fund Ltd outperformed the category with a return of 74.34 percent over the last year. It has Rs 1,530.26 crore in assets under management (AUM). It is then followed by UTI Retirement Solutions Limited and ICICI Prudential Pension Fund with 1 year returns of 72.82% and 72.49% respectively. The average return on NPS Scheme E over the last five years is 13.86%, while the 10-year return is around 10.65%. If we compare the 1-year returns of NPS Scheme E Tier -1 with the top or high rated equity mutual funds such as Axis Bluechip Fund (rated-5 star), Canara Robeco Equity Tax Saver (rated- 5 star), Axis Midcap Fund (rated 5- star), Nippon India Pharma Fund, these funds has delivered 1-year returns of 41.8%, 56.5%, 55.6% and 54.5% respectively which is much lower. But the question is that should you invest in NPS to get similar returns on your investments in the future? Let’s find out.

NPS Scheme E Tier-1 Returns

Scheme E Tier-1 (source: NPS Trust) as on 31 March 2021
Pension Funds Inception Date AUM in Rs Cr NAV 1 year returns 3 year returns 5 year returns
Aditya Birla Sun Life Pension Management Ltd. 09-May-17 125.2 15.6499 68.64% 12.74% NA
HDFC Pension Management Co. Ltd. 01-Aug-13 7,066.07 28.8305 69.78% 13.78% 15.08%
ICICI Pru. Pension Fund Mgmt Co. Ltd. 18-May-09 3,045.66 38.0203 72.49% 12.69% 13.82%
Kotak Mahindra Pension Fund Ltd. 15-May-09 604.29 35.1073 70.98% 11.97% 13.94%
LIC Pension Fund Ltd. 23-Jul-13 1,530.26 24.0674 74.34% 11.17% 12.69%
SBI Pension Funds Pvt. Ltd 15-May-09 5,736.48 31.9959 66.28% 12.14% 13.64%
UTI Retirement Solutions Ltd. 21-May-09 871.55 37.4794 72.82% 12.10% 14.00%
Benchmark Return as on 31/03/2021 73.48% 13.73% 14.79%

Goodreturns take

Despite the fact that NPS has consistently generated strong returns over the past year, investors should moderate their standards for NPS equity schemes. NPS is a product that is linked to the market. The NPS equity scheme has evolved in tandem with the rise of the equity market. As a result, these kinds of returns may not be consistent with the volatile market. To build a large retirement fund, it is critical to invest wisely and over time. The minimum investment in asset class E (equity) has been set at 75% by NPS. You can choose the auto-choice alternative, which invests funds in a pre-defined portfolio based on the age of the subscribers. For ELSS, the lock-in period is set at three years. The NPS, on the other hand, will only enable you to withdraw your money after you reach the age of 60 or when you retire. NPS could be the ideal alternative for individuals who want to get long-term returns to create wealth for retirement, whereas ELSS is well suited to those who want to save capital for a certain purpose in the near future. But both may not give you similar returns in future.

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