Market Strategy

Put your money in National Pension Scheme and beat the market

Parvatha Vardhini C BL Research Bureau | Updated on May 13, 2018

Equity or debt and across time-frames, Tier-I NPS funds have posted robust returns

If you have been saving for retirement through the National Pension Scheme (NPS), you have every reason to smile.

Many Tier-I funds of the NPS, across categories — equity, corporate debt and government securities — have managed market-beating returns over the short- and long-term.

The top performers among funds that are heavy on equity have convincingly beaten large-cap indices such as the Nifty 50 and the Nifty 100 over one-, three- and five-year periods. Nearly all the funds that invested in corporate debt and government bonds outdid the average returns of income funds and gilt funds (medium- and long-term), respectively, in the above time-frames (see table).

What’s more, with tax breaks applying to NPS Tier-I investments, the effective returns could be higher.

For the 5+year time-frame, UTI’s equity fund is the top performer in the category, leaving the Nifty 50/Nifty 100 index behind by 2-3 percentage points. Expansion of the investment basket by easing the norms, coupled with nimble-footed stock selection, helped the fund match returns of the broader Nifty 500 over a five-year period.

ICICI is the winner in both the corporate debt and government bonds categories over a five-year period. ICICI is second-best in the equity category, after UTI.



An interesting trend is the good returns that recent NPS entrants have notched up. HDFC Pension Fund, which has been around for less than five years, is the top performer in the equity category in the last year. It is also the topper in the alternative investments category, a recent addition to the fund choices under the NPS.

Similarly, Aditya Birla Sun Life Pension Scheme, which is less than three years old, stands tall in the corporate debt option. Its returns last year under the equity option are almost equal to HDFC’s fund.

Bond prices have lost a bit of sheen with the yield on 10-year government securities moving up from about 6.9 per cent a year ago to 7.7 per cent now.

Mutual funds that invest in medium- and long-term bonds only garnered an average return of 2.09 per cent in the last one year. But, under the NPS, another recent entrant, LIC, managed at least twice that.

Scope to improve returns

Barring intermittent volatility, equity markets have been on an upswing since late 2013. This has helped the equity option gain an edge over other options across time periods, making them suitable for young investors.

These investors can use the recent leeway provided by the regulator to ‘active choice’ investors to invest up to 75 per cent of their NPS amount in equity.

Published on May 13, 2018

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