Nevertheless, all subscribers of NPS have good news indeed. The risk-return profile of NPS has undergone a massive transformation. So investors have been granted a broader canvas for asset allocations.
Low Return Equity Funds Bothering NPS Subscribers
Over the past few years, equity funds have been experiencing negative returns. Like mutual fund investments are subject to market risks, NPS investments are experiencing the same. As a result, the National Pension System subscribers have also become anxious.
However, there is not much for NPS subscribers to worry and panic about. The crashing and underperformance of equity schemes are occurring mainly because of the recent large-cap bias of the stock market.
It is found that various active NPS managers follow a multi-cap strategy by investing in stocks outside the Nifty. So whenever the stock market leans towards large caps, it is evident that the equity funds are bound to underperform.
The volatility of NPS is usually compensated by the debt segment of the National Pension System. Nevertheless, it did not succeed in acting as a cushion this time as the debt segment fared poorly.
With such a dreadful situation, many investors were drawn toward EPF and PPF. These provident fund schemes were providing a considerably higher rate of interest than NPS.
Market Trends in the Past Few Months
The equity funds of the National Pension System have considerably underperformed the Nifty. Here is a comprehensive listing of the market trends of mid-caps and small-caps of NPS:
| NPS Funds | Rates of Return |
| Kotak Pension Fund | 15.94 |
| Birla Sun Life Pension Scheme | 14.81 |
| LIC Pension Fund | 17.07 |
| HDFC Pension Fund | 12.51 |
| ICICI Prudential Pension Fund | 11.93 |
| SBI Pension Fund | 15.22 |
| UTI Retirement Solutions | 14.78 |
However, the long-term investment policies yielded more negative returns. Here is a listing of all the 3 and 5 years investments:
| Tier 1 NPS Equity Funds | 3 Years Investment | 5 Years Investment |
| SBI Pension | 12.68 | 12.09 |
| LIC Pension | 13.53 | 11.71 |
| Kotak Pension | 14.21 | 12.32 |
| UTI Retirement Solutions | 12.97 | 12.27 |
| ICICI Prudential Pension | 13.94 | 12.78 |
Depreciation of NPS Return is Temporary
You need to treat NPS just like a systematic investment plan. It is because the low expense ratio will considerably help in boosting the long-term performance. So you must increase allocations to NPS because of the underperformance of both the debt and equity market.
As you have the privilege of changing your asset allocation twice a year, you can boost the NPS return rate. Moreover, you can invest up to 75% in equity and contribute to increasing and balancing the return rate.
Major Concerns One Should Consider While Investing in NPS
Despite the NPS scheme providing substantial benefits, there are a few significant concerns you should consider. So before you start investing in NPS, go through some of the concerning pointers:
1. NPS comes with primary withdrawal limits, thereby restricting all withdrawals before 60.
2. All the government employees are granted lesser benefits when compared to the earlier pension schemes.
3. There are certain account opening restrictions associated with NPS.
4. The NPS corpus instills significant tax during the time of withdrawal.
5. Subscribers investing in the NPS will face certain investment restrictions.
6. Lastly, even though the NPS is a government scheme, it comes with no guaranteed return value.
Major Benefits Associated with NPS
Here is a comprehensive listing of all the significant benefits associated with the NPS:
1. You can seamlessly maintain your NPS account through your allotted PRAN.
2. The NPS is regarded as one of the cheapest pension plans across the globe.
3. Your Tier II NPS account is exempted from the restriction despite having withdrawal restrictions.
4. You have the option of opening multiple NPS accounts, thereby creating numerous investment avenues.
5. Lastly, with NPS, you always have the privilege of changing your fund manager.
Stop Worrying About Return Drops and Start Investing Today
The fluctuations in the market will come and go, so you need not be bothered about the depreciation of the returns. Keep in mind the benefits of NPS and start investing for a tension-free future today itself.
Author: Sreekanth Nadella, MD and CEO, KFintech
