While the National Pension System (NPS) is an ideal investment option to build a retirement corpus, selecting the right fund manager, the asset allocation mix and reviewing the performance of the selected fund manager will determine the quantum of wealth created over a long period of 35 to 40 years.
With 10 pension fund managers, opting for the right one is a challenging task for the subscriber, especially as the funds are managed passively and replicate the indices. For higher returns, experts say subscribers should opt for systematic investment plan (SIP) in NPS through D-Remit and must compare the returns of all the four categories of asset classes — equity, government securities, corporate bonds and alternatives — to evaluate the performance of the funds and invest accordingly.
Opt for SIP via
If you have an active NPS account and a permanent retirement account number, you can start a systematic investment plan (SIP) in NPS through online (D-Remit) or offline through Points of Presence (PoP) entities, by giving a standing instruction to the bank for SIP payments to your NPS account. The minimum contribution is `500 for both Tier 1 and Tier II accounts.
D-Remit gives the option to a subscriber to set up SIP through auto debit instructions in net banking by which periodical and regular contributions can be made in the NPS account. It helps the subscriber to build his retirement corpus with convenience and makes him a more disciplined investor without timing the market. Like mutual funds, SIPs will enable a subscriber of NPS to reap the benefit of rupee cost averaging. Subscribers can simply increase or decrease their existing investments and get higher returns.
To use the D-Remit process under NPS, the subscriber will be required to have virtual ID or virtual account with the trustee bank (currently Axis Bank) and the virtual account and the trustee bank can be used only for remitting NPS contributions. To set up the SIP using netbanking, the subscriber will have to add the virtual account as a beneficiary to his netbanking account and provide standing instruction for the SIP amount to be debited from the account. After investment, the subscriber will receive the net asset value (NAV) of the same day in the NPS account. To get the same day NAV, the cut-off time for fund receipt is 9.30 am. If the fund is received by the trustee bank after 9.30 am or on a non-working day, the NAV of the next working day will be applicable.
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Choose fund manager as per asset allocation
As NPS comes with active choice (individual funds) and auto choice (lifecycle funds), the subscriber must select the fund manager based on his asset allocation. If the equity exposure is high, then he must check the performance of the equity funds.The five-year returns in the equity category is highest for HDFC Pension Management at 12.28% followed by ICICI Prudential Pension Fund Management at 11.85%.
If the subscriber’s debt allocation is on the higher side, then he should look at the returns generated by fund houses from government securities and corporate bonds. For instance, in government securities, LIC Pension Fund tops the returns with 7.87% followed by HDFC at 7.39%, data from NPS Trust as on October 28 show. For returns in five-year corporate debt, HDFC Pension Management tops at 7.72%. In fact, the pension fund manager tops in one-year, three-year and seven-year returns.
With growing divergence in returns, a small difference in returns now will become big in the long term and lower the total corpus. So subscribers must review their investments at least once a year and decide whether to continue with the same fund manager or not. The fund manager can be changed once in a financial year at no extra cost.
n The 5-year return in the equity category is highest for HDFC Pension Management at 12.28%
n In G-Secs, LIC Pension Fund tops the returns with 7.87% followed by HDFC at 7.39%
n Keep track of your NPS returns, and if it is not comparing favourably with the benchmarks, change your fund manager