Several studies done in the past have shown that over the long term, equity as an asset class has generated a higher inflation-adjusted return over other asset classes such as debt, gold and real estate. National Pension System (NPS) provides the option to invest across various asset classes, including equities, under the fund option called ‘Scheme E’. However, remember, the maximum investment in it is capped at 75 per cent of the amount invested.
As an NPS Subscriber of All Citizen Model and Corporate Model, one has to primarily choose few things before his or her funds are invested in NPS fund options.
As an NPS Subscriber one is required to choose the Pension Fund Manager (PFM) while registering in CRA system under NPS. Currently, the PFMs are Birla Sun life Pension, HDFC Pension, ICICI Prudential Pension Funds, Kotak Mahindra Pension Fund, LIC Pension Fund, Reliance Capital Pension Fund, SBI Pension Funds and UTI Retirement Solutions. No matter which PF manager one selects or even the default PF manager is chosen, all of them have to invest the funds as per the guidelines issued by PFRDA from time to time. As a subscriber, you have the option to change the PF Manager once in a year free of cost.
Also, one has to opt for scheme preference i.e. investment options which can be Auto Choice or Active Choice. If one opts for Active Choice, the subscriber has to allocate funds among one or more of the four Asset Classes i.e. Equity, Corporate debt, Government Bonds and Alternative Investment Funds. The four fund options available are Asset Class E, Asset Class C, Asset Class G, and Asset Class A.
Under the Auto Choice also known as Lifestyle Fund, the allocation automatically changes based on age.
Here, we look at the Scheme E (Tier I) returns generated ( as on 30 April, 2019) by all the 8 pension fund managers over the last 1,2,3, 5 years and since inception. Also, the returns generated by their benchmark is shown.
The fund management is more or less index investing in NPS. If not beating the benchmark, at least the fund is expected to be in line with index returns. The top 5 stock holdings of almost all the PFMs includes – HDFC Bank, Reliance Industries, Infosys, Housing Development Finance Corporation, ITC, TCS , ICICI and Kotak Mahindra Bank with varying allocation in them.
|NPS SCHEME – E (Tier-I)|
|Birla Sun Life Pension||9-May-17||5.40%||NA||NA||NA||10.51%|
|ICICI Pension Fund||18-May-09||7.73%||10.98%||14.07%||12.54%||11.72%|
|Kotak Mahindra Pension||21-May-09||6.66%||9.68%||13.99%||12.54%||10.73%|
|LIC Pension Fund||23-Jul-13||5.65%||9.22%||12.97%||11.41%||12.23%|
|Reliance Capital Pension Fund||21-May-09||6.57%||9.23%||13.05%||11.81%||10.71%|
|SBI Pension Funds||15-May-09||8.03%||11.09%||14.68%||12.79%||10.00%|
|UTI Retirement Solutions||15-May-09||6.09%||10.89%||14.77%||13.11%||11.68%|
|Source: NPS Trust As on 30 April, 2019 In alphabetic order|
Over the last 1 year, only 2 PFMs (ICICI and SBI) out of 8 were able to beat the benchmark, while over the two year period, there was none. HDFC Pension is the only PFM that outperformed the benchmark returns over the 3 year period, while along with UTI it again crossed the bar over the five year period.
The actual allocation in these top 5 holdings varies between 24.67 per cent and 37.23 per cent as on 30 April, 2019, which could be the reason for differences in returns.