Equity-focussed NPS outperforms others

Riding on the ongoing bull run in the equity markets, pension assets of the National Pension System (NPS) parked under the Category E (Equity) clocked an impressive 22.33 percent return over the last 12 months. 

This stands in stark contrast to the more conservative Central and State government composite schemes, which yielded a comparatively modest 9.5 per cent return for the NPS monies invested in them over the same period, latest PFRDA data showed. 

FPIs investments

Nearly 25 per cent of the benchmark equity indices gains this year have come in the last two months (November and December), fuelled by surge in FPI investments which have pumped in nearly $8.5 billion in November and December 2023 alone.

Put simply, an individual who’s part of the NPS and picked either Active or Auto choices, especially focusing on investing in stocks (Category E) with meaningful allocation, will now enjoy better returns from their investment. Such a notable divergence in returns has unequivocally positioned equities as an attractive avenue for pension fund investments, say experts. 

The soaring stock markets — both the leading equity benchmarks of Sensex and Nifty50 hit an all-time high on Thursday—are also expected to drive the surge of new subscribers to NPS, especially from the private sector. 

The allure of higher returns on pension investments in equities has captivated the attention of individuals seeking to secure their financial future.

The staggering 22.33% return achieved by pension assets in equities underlines the tremendous potential for long-term growth and wealth accumulation. 

The allure of significantly higher returns not only bolsters confidence but also fosters a broader understanding of the benefits associated with equity investments among potential subscribers, they said.

Meanwhile, on a 3-year basis, pension monies invested in Category E (Equities) yielded a return of 18.93 per cent, much higher than the 6.8 per cent return from the Central and State Government composite schemes.

Since inception, returns from Category E (equities) stood at robust 13.14 per cent against an average 9.4 per cent for the Central and State Government schemes.

Sriram Iyer, CEO at HDFC Pension said  that the Central and State Government (SG) schemes predominantly invest in fixed income securities with an exposure of only 15 per cent to Equity.  “This explains the wide variance in returns between these composite schemes and Category E (Equity) under the NPS architecture. A subscriber who has chosen an Active choice or Auto choice options with meaningful allocation to equities under the Category E would now reap the benefits of the higher returns”, Iyer said.

Robust growth

India’s pension assets under NPS have been growing at robust pace and touched as of December 23 a level of ₹ 10.86 lakh crore, up 27.95 percent growth on a year-on-year basis. Of this ₹10.86 lakh crore, about ₹2 lakh crore are parked in equities, sources said. 

Private participation

Much of the success of the NPS story can be attributed to the increased participation from private sector — corporate employees and individuals — in recent years. Up to December 23 this fiscal, as many as 5.07 lakh new NPS subscribers have been enrolled. This comprised 4.09 lakh individuals (all citizens model) and 98,078 corporate employees under the Corporate model.

PFRDA this fiscal year expects at least 13 lakh new subscribers from both Corporates and all citizen categories. In the last fiscal year, PFRDA had added a million new subscribers.

The confluence of a booming stock market and the impressive performance of pension assets in equities marks a watershed moment in India’s financial narrative, experts said. It not only underscores the resilience of the financial markets but also highlights the potential for sustained growth and prosperity, they added.

NPS AUM had doubled to ₹10 lakh crore from ₹5 lakh crore in just two years and ten months. NPS took six years and six months to reach the milestone of ₹1 lakh crore AUM after its implementation in the year 2009. It then took 4 years and 11 months to further increase the AUM to ₹5 lakh crore.  

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