How NPS has performed in the past 5 years?

Planning for your retirement? These returns from NPS may help you plan better

NPS returns based on investment styles

The National Pension Scheme (NPS) is one of the few financial products that help you build a nest egg for retirement. The scheme offers various funds that have varying exposure to equity, corporate debt and government securities. Based on your risk profile, you could limit the exposure to various components. Equity, for example, carries the most risk and can potentially generate the highest returns. One of the ways you can decide on which funds to invest in is by looking at their performance of various fund managers over the last 5 years.  

Fixed plans

If you are a central or state government employee, you can choose the plans offered specifically for them. Similarly, subscribers to Atal Pension Yojna and Swavalamban Scheme can only select from the plans available under these schemes. They cannot choose to actively decide how their monies should be invested in various fund types. 

The return for five such plans is provided below. One can choose the pension fund manager they like within the plan.

Central Government Plans

These plans allocate 8% to 12% of the investment into equity. The returns have been better than risk-free returns offered by banks. 

Funds LIC Pension Fund SBI Pension Fund UTI Retirement Solutions
NAV 28.44 29.31 28.36
6-month return (%) 7.86 8.00 7.82
1-year return (%) 13.07 13.20 12.79
3-year return (%) 9.56 9.59 9.70
5-year return (%) 10.01 10.32 10.19
Worth of monthly ₹5,000 contribution after 3 years (lakh) 2.05 2.05 2.05
Worth of monthly ₹5,000 contribution after 5 years (lakh) 3.77 3.78 3.78
Assets (Cr) 34,355 38,804 36,894


State Government Plans

Equity allocation for these plans ranges from 7% to 11%.

Funds LIC Pension Fund SBI Pension Fund UTI Retirement Solutions
NAV 25.38 25.17 25.25
6-month return (%) 7.85 8.05 7.85
1-year return (%) 12.96 13.22 12.80
3-year return (%) 9.51 9.57 9.59
5-year return (%) 10.08 10.38 10.19
Worth of monthly ₹5,000 contribution after 3 years (lakh) 2.05 2.05 2.05
Worth of monthly ₹5,000 contribution after 5 years (lakh) 3.77 3.78 3.77
Assets (Cr) 52,580 54,586 53,521

NPS Lite (Swavalamban) Plans

These plans invest 10% to 15% of the funds into equities.

Funds LIC Pension Fund SBI Pension Fund
NAV 18.74 18.70
6-month return (%) 8.35 8.09
1-year return (%) 13.70 13.33
3-year return (%) 9.58 9.69
5-year return (%) 10.14 10.48
Worth of monthly ₹5,000 contribution after 3 years (lakh) 2.05 2.05
Worth of monthly ₹5,000 contribution after 5 years (lakh) 3.78 3.79
Assets (Cr) 1,981 18,839


Atal Pension Yojna

Funds LIC Pension Fund SBI Pension Fund UTI Retirement Solutions
NAV 14.41 14.17 14.49
6-month return (%) 8.16 8.11 7.96
1-year return (%) 13.37 13.58 13.01
3-year return (%) 9.50 9.91 9.66
5-year return (%)      
Worth of monthly ₹5,000 contribution after 3 years (lakh) 2.05 2.06 2.05
Worth of monthly ₹5,000 contribution after 5 years (lakh)      
Assets (Cr) 2,322 2,410 2,328


Active Allocation

NPS members can choose one among eight pension fund managers available to them. Post that, they can choose to actively decide how much of their funds should be allocated to an asset type. Before we look at how various investor types have earned a return from NPS, let us look at how each fund manager has performed for a given fund type.

Tier I: Equity Plans

All of these plans have given better results than Nifty over 1-year, 3-year and 5-year periods.

Tier I: Equity Plans

Tier I: Government Bond Plans

All of these plans have given better results than average returns from investment in medium-term gilt funds over 1-year, 3-year and 5-year periods.

Tier I: Corporate Debt Plans

All of these plans have given better results than average returns from investment in income funds over 1-year, 3-year and 5-year periods

Tier I: Alternative Investments

All of these plans have given better results than Nifty over 1-year, 3-year and 5-year periods.

Tier II: Equity Plans

All of these plans have given better results than average returns from investment in medium-term gilt funds over 1-year, 3-year and 5-year periods.
 

Tier II: Government Bond Plans


Tier II: Corporate Debt Plans

All of these plans have given better results than average returns from investment in income funds over 1-year, 3-year and 5-year period

Aggressive investors
Now, let us take a look at four sample investor types:

These investors are looking to generate as much return as possible, even if that entails a high risk. For our example, let us consider the below asset allocation:

Equity funds: 50%

Corporate debt: 30%

Gilt funds: 20%

The performance for such an investor over the last five years is shown below:

Tier I


Tier II
 

In the last few years, the market has rewarded the risk-takers richly. It is important to remember that NPS funds are locked in for 30 years, and investing in equity during the first few years could be good strategy. That said, the returns from equity have slowed down over the last six months. The equity rally that started 5 years back is letting up now. The investors should not expect to see similar high returns in the short-run. But look for accumulating good equity for long-term as the market is bound to cycle out of this slow down sooner than later. 

Balanced investors

These investors like to invest equally among all the available fund types. For our analysis we will ignore Alternative Assets as they have been introduced only a year back, and still enough data is not available on the returns. For our example, let us consider the below asset allocation:

Equity funds: 33.33%

Corporate debt: 33.33%

Gilt funds: 33.33%

The performance for such an investor over the last five years is shown below:

Tier I

Tier II

A balanced strategy is a good way to limit risk while still allowing enough opportunity to earn high returns. The investors who took this approach may not have earned as much as the aggressive investors – but have still managed a two-digit return over the last 5-year period. While this is a safe option, you should look to invest in lifecycle funds in case you find it difficult to decide how to allocate your funds. Lifecycle funds invest in equity at the start of your investment and slowly move the investments out of equity as you grow old.

Conservative investors

A conservative investor may choose to invest as little as 20% in equity funds, instead choosing much safer government debt. The asset allocation may look like this:

Equity funds: 20%

Corporate debt: 30%

Gilt funds: 50%

The performance for such an investor over the last five years is shown below:

Tier I
 


Tier II
 

Ultra-safe investors
Conservative investors have not taken as much hit from the slowdown in equity markets as the aggressive investors. They have managed to earn a steady return over the last few years, and their long-term returns have continued to be in double digit. This kind of allocation is good for investors who are within a few years of maturity and should not be taking any undue risk.

An ultra-safe investor would like to reduce the risk as much as possible. Therefore, the asset allocation to equity funds would be the lowest – i.e. none at all. The would invest heavily in government debt. The asset allocation may look like this:

Corporate debt: 40%

Gilt funds: 60%

The performance for such an investor over the last five years is shown below:

Tier I

Tier II
 

Tier I: Government Bond Plans

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