NPS (National Pension Scheme) is one of the very popular Pension oriented products in India. It is estimated that the Government employees (Central / State) contribute about 86% of the Rs. 2.75 lakh crore overseen by the NPS, which started in 2004 and which was later opened to all citizens for voluntary contributions.

The Central Govt made NPS scheme mandatory for all the employees who joined the service on or after January 1, 2004. It has since been adopted by most state governments also. Currently, NPS has around  1.19 Crore subscribers with total Assets under Management (AUM) of more than Rs. 2.75 lakh crore.

The Government of India rolled out the National Pension Scheme (NPS) for all the citizens of India from May 1, 2009 and for corporate sector from December, 2011.

Latest NPS Norms & Rules 2019

To make NPS more attractive, the Govt has come up with certain new norms, which will be implemented with effective from April, 2019 onwards. Below are the latest NPS rules (2019);

Latest NPS rules changes norms 2019 revised NPS scheme Tier 2 tax benefits 80c
(Source : The Economic Times)
  • National Pension System (NPS) offers two types of accounts – Tier I and Tier II. Income Tax benefits are currently available on Tier-1 deposits only. However, contribution by the government employees (only) under Tier-II of NPS will also be covered under Section 80C for deduction up to Rs 1.5 lakh for the purpose of income tax, provided there is a three-year lock-in period. This is w.e.f April, 2019.
  • If your employer (Govt) contributes to Pension Scheme, the whole contribution amount (10% of salary) can be claimed as tax deduction under Section 80CCD (2). The Centre will now contribute 14% of basic salary to their pension corpus, up from 10%. This is w.e.f April, 2019.
  • W.e.f April 2019, on contributions made by the Govt employees, the equity component can be up to 50%. Also, the choice of Fund managers have been increased from current 3 to 8.
  • At present, 40% of the accumulated corpus utilized for the purchase of the annuity is tax-exempt. Of the remaining 60% corpus withdrawn by the NPS subscriber at the time of retirement, 40% is tax-exempt and 20% is taxable. The tax exemption is now extended to the entire 60%.

Types of NPS Funds, Scheme Preferences & Fund Managers :

Below mentioned four fund categories / Investment options (also known as asset classes) are available under National Pension System:

  1. Equity Fund (E)
  2. Government Securities Fund (G)
  3. Corporate Fixed Income Instruments other than Govt. Securities (C)
  4. Alternative Investments (Tier-1)

The money invested in NPS is managed by PFRDA-registered Pension Fund Managers. At the moment, there are eight NPS pension fund managers:

  1. Birla Sun Life Pension Scheme
  2. HDFC Pension Fund
  3. ICICI Prudential Pension Fund
  4. Kotak Pension Fund
  5. LIC Pension Fund
  6. Reliance Capital Pension Fund
  7. SBI Pension Fund
  8. UTI Retirement Solutions

The govt employees’ NPS accounts and contributions are currently managed equally by three fund managers namely – LIC Pension Fund, SBI Pension Fund and UTI. The fund managers options will be increased to eight. Under this category, do note that up to 15% of corpus (optional 50% w.e.f. April, 2018) only can be invested in Equity fund. The rest of the corpus is allocated to Corporate Bonds and Govt securities.

The pvt (corporate) sector employees and other individuals can also invest in NPS. The Equity fund threshold limit is 50% or 75% in this case. These individuals can select any of the two investment options to select scheme preferences.

  • Active choice – Under this option, subscriber selects the allocation pattern amongst the three funds E, C and G. The Maximum allocation to Equity can be 75% and 100% in Corporate or Govt securities. (However, there is a clause of tapering of the equity allocation after the age of 50 years.)
  • Auto Choice : Under this option, subscriber funds are automatically allocated amongst three funds E, C and G in a pre-defined portfolio pattern prescribed by PFRDA. When a subscriber chooses this option, it adopts a lifecycle-based approach, in which the allocation to different asset classes changes gradually as the person’s age increases.
    • You will be given three types of funds to choose from –
      • Moderate Life Cycle Fund (default option) – The “Moderate Life Cycle Fund” option provides you with the option of a Life Cycle fund with a reasonable risk profile, where the maximum equity allocation is kept at 50% up to the age of 35 years.
      • Aggressive Life Cycle Fund – For “Aggressive Life Cycle Fund” maximum equity allocation is kept at 75% up to the age of 35 years.
      • Conservative Life Cycle Fund – for “Conservative Life Cycle Fund” maximum equity allocation is kept at 25% up to the age of 35 years.
  • With effective from 1st April 2017, NPS subscribers can change their investment option and asset allocation ratio ‘twice’ in a year. However, you can select the pension fund manager only once a year.

So, returns on your NPS investments are dependent on the type of Fund(s) that who have chosen to invest.

Best NPS Funds 2019 – Best NPS Fund Returns – Top Performing NPS Fund Manager

Let us now analyze the best NPS Funds and their returns;

Best NPS Fund Returns – Central Govt Plans

  • The contributions to NPS Accounts by Central govt employees are currently equally managed by the three pension fund managers.
  • The best NPS Fund manager based on the returns generated in the last 5 years is SBI Pension Fund. This fund has generated returns of around 10.64%. The current asset allocation between Equity & Debt is around 11.55% : 85.90%. The fund’s portfolio has the highest exposure to the Financials sector.
  • In terms of Assets under management, SBI Pension Fund is the biggest one with Assets of around Rs 34,900 cr.

Best NPS Funds 2019 Returns – State Govt Plans

Top Performing NPS Scheme State Govt Investment option 2019-20
  • The best NPS Fund manager based on the returns generated in the last 5 years is SBI Pension Fund. This fund has generated returns of around 10.71%. The current asset allocation between Equity & Debt is around 10.55% : 87%. The fund’s portfolio has the highest exposure to the Financials sector.
  • In terms of Assets under management, SBI Pension Fund is the biggest one with Assets of around Rs 47,500 cr.

Top Performing NPS Tier-I Equity Funds Returns – Scheme E 

Best NPS Funds 2019 Best NPS Equity Fund Scheme E Tier 1 Returns
  • The best performing NPS Pension Fund manager under NPS Tier-1 Equity Plan is HDFC Pension Fund. This scheme has generated returns of around 13.17% in the last 5 years.
  • The HDFC Pension fund – Equity plan has picked, Financials, Energy & Technology as top 3 sectors. Nearly 8% of the Fund’s Equity corpus has been invested in Reliance Industries stock. It has an Equity : Debt allocation of around 96% : 3.8%.
  • The HDFC Pension Fund – Equity Plan has been faring well based on the parameters of Returns, Downside risk and Consistency.
  • The Equity plan offered by the SBI Pension Fund has the highest AUM of Rs 1,922 cr.
  • The benchmark used for Equity plans is CNX Nifty 50 Index.

Top Performing NPS Fund Manager – NPS Tier 1 Funds – Corporate Debt Plans (Scheme C)

Best NPS Fund manager 2019-20 Best NPS Fund Scheme Tier 1 Corporate Debt
  • The highest returns generated by NPS Funds under Corporate Fixed Income Plans are managed by ICICI Prudential and Reliance Capital Pension fund managers.
  • ICICI Scheme C (Tier-1) has an allocation of around 96.76% to Debt securities, with a 42% sub-allocation to Debentures.
  • The HDFC Pension Fund – Corporate Debt Scheme has also been performing well, based on the parameters of Returns, Downside risk and Consistency.
  • SBI Pension Fund has the highest AUM of around Rs 1,279 cr.

Best NPS Fund Tier-1 under Scheme-G Category (Govt Securities)

Best NPS Scheme Tier 1 Govt Bond plans pic
  • The Government Bond Plan offered by LIC Pension fund has clocked returns of around 11.60% during the last 5 years. But, the returns have been volatile (high standard deviation). The Fund has allocation of around 19% to GoI securities.
  • ICICI Prudential Pension fund Scheme G Plan has also been performing well.

Best NPS Pension Fund Returns – Tier II Account – Equity Plans (E)

Best NPS Tier 2 Equity Fund Scheme E 2019 ICICI HDFC LIC SBI Kotak HDFC
  • The Equity Scheme offered by UTI Retirement Solutions has generated returns of around 13.35% during the last 5 years. The fund’s portfolio has ‘financials’ sector with highest exposure, followed by the FMCG & Technology sectors. The top 3 stock picks are – Reliance industries, HDFC Bank & ITC Ltd.
  • Pension Fund manager HDFC’s Equity plan has also been performing well, with returns of around 13% in the last 3 years. This fund has been faring well based on the parameters of Returns, Downside risk and Consistency.

Best NPS Tier-II Funds Returns 2019 – Top Performing NPS Fund Manager Corporate Debt Plans (Scheme C)

Best National Pension System investment scheme Tier 2 Corporate Bond plan 2019
  • The highest returns generated by NPS Funds (Tier -II) under Corporate Fixed Income Plans are managed by ICICI Prudential, SBI Pension Fund & Reliance Capital Pension Fund managers.

Best NPS Pension Fund Returns – Tier II Account – Govt Bond Plans (G)

highest returns NPS Fund 2019 Scheme G Tier 2
  • The Tier-II Government Bond Plan offered by LIC Pension fund has clocked returns of around 11.44% during the last 5 years.
  • ICICI Pru fund has also been faring well based on the parameters of Returns, Downside risk and Consistency.

How to calculate Returns on NPS Fund Scheme?

In case, you would like to do more analysis on the returns generated on various NPS Funds, you may visit NPS Trust portal.

NPS Funds Returns Calculator NPS Trust portal pic

Besides Returns data, if you would like to do more research and analysis on other parameters like consistency of returns, standard deviation, Sharpe ratio, downside risk, up-side capture ratio, down-side capture ratio, Fund Asset allocation, risk-return matrix etc., you may visit ‘The Economic Times’ portal. Click here to access the details of Tier-1 Funds. You may visit this link to get the risk/return data of Tier-II Schemes.

You can find respective NPS Fund’s scheme portfolio details at this link..

My perspective on NPS:

I believe that most of the investors opt for the NPS for two main reasons –  i) for tax saving purpose & ii) No other choice than to invest as contribution to NPS has been made mandatory for the Govt employees.

Unfortunately, majority of the subscribers are not aware of ‘how NPS scheme works’ and invest in it just to save some taxes.

Before you invest in NPS (if planning to invest), kindly understand the features of NPS, tax implications, withdrawal rules & mandatory clause to buy annuity product on maturity and then take a wise decision. If you have already invested in NPS, you may review your investment decision.

Given a choice between NPS and Mutual Funds, I would prefer investing in Mutual Funds to NPS.

Kindly share your views on NPS as investment choice? Have you invested in NPS? Will you invest in NPS just because the (Tier-1 Account) withdrawals have been made 100% tax-exempt? Which one do you prefer, NPS or MFs? Share your views, cheers!

Continue reading :

(Image courtesy of Mister GC at FreeDigitalPhotos.net & Social media image source: The Economic Times) (References : Valueresearchonlne, NPS Trust portal & Economic Times) (Post first published on : 07-January-2019) 



Best NPS Funds 2019 | Top performing NPS Scheme

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