36-year-old Arpit was pleasantly surprised when he read about thebenefits of investing in National Pension System (NPS). Arpit understood that investment in NPS could help him create a sizable retirement corpus and earn an old-age pension. In addition, investments in the NPS can also help him claim a tax deduction of up to Rs. 2 lakh and reduce his taxable income considerably.
Given the benefits, Arpit decided to invest in NPS. However, when he tried to find out the best NPS fund manager for his portfolio, he struggled to zero in. Arpit is not alone. It is quite a daunting task for many investors to find out the best NPS fund manager for their portfolio. And it is primarily due to the scarcity of analysis on NPS.
To help investors like Arpit, we will examine the performance of different NPS fund managers. And explain how you can select the right pension fund manager for your portfolio.
NPS Pension Fund Managers In India – The Options You Have
Currently, there are 7 Pension Fund Managers. Following is a list of these 7 pensions fund managers who manage investments by NPS subscribers:
- Aditya Birla Sun Life Pension Management
- HDFC Pension Management
- ICICI Prudential Pension Fund Management
- Kotak Mahindra Pension Fund
- LIC Pension Fund
- SBI Pension Fund
- UTI Retirement Solutions
Recently, Axis Asset Management, TATA Asset Management, and Max Life Insurance have also received the necessary approvals to establish a pension fund company. So, the number of fund managers will increase to 10 in India.
All these pension fund managers invest your money in 4 types of assets. These 4 asset classes are equity (Class E), government bond (Class G), corporate debt (Class C), and alternative investment funds (Class A).
Each of these 4 asset classes (E, G, C, and A) has a different risk-return profile. And NPS gives you the flexibility to decide how much you want to invest in each of these 4 types of asset classes. We have a detailed blog that explains how toPick Asset Allocation for Your NPS Investmentsand customize your investments in sync with your risk profile.
In this blog, we are figuring out the best NPS fund manager. So we will evaluate which pension fund manager will suit your investment portfolio the best. To that end, let’s look at the performance of the 7 existing pension fund managers in different asset classes, i.e., Equity, Government Bonds, and Corporate Bonds.
We will not examine the performance of pensions fund managers in the fourth asset class (Class A), which houses alternative investment funds like commercial mortgage-backed securities, real estate investment trusts, infrastructure investment trusts, etc. That is because only a maximum of 5% of your investments can go to this asset class.
NPS Fund Performance: Scheme G
The average NPS fund has delivered an annualized return of 10.2% over the last 8 years when investing in government securities. To put this return in perspective, let us compare it with the NIFTY 10 Year Benchmark G-Sec Index, which is typically used as a benchmark by Gilt mutual funds.
| Annualized Returns Of NPS Funds (Scheme G) | |||||||
| HDFC | ICICI PRU | SBI | UTI | LIC | KOTAK | ADITYA BIRLA | |
| 8 Years | 10.1% | 10.2% | 10.3% | 9.8% | 10.9% | 10.2% | – |
| Nifty 10 Year Benchmark G-Sec Index | 7.5% | ||||||
Data From 01-Nov-2013 To 29-Oct-2021
The comparison shows that NPS funds have outperformed the NIFTY 10 Year Benchmark G-Sec Index by a decent margin. While the NPS funds have delivered annualized returns of over 10%, the NIFTY 10 Year Benchmark G-Sec Index has delivered 7.5% annualized returns over the previous 8 years.
Not just the benchmark, the Asset G NPS funds have outperformed their counterparts in the mutual fund industry (Gilt Funds) during the same period. The prime reason for NPS funds doing better than Gilt mutual funds is the difference in the average maturity of these schemes. While a Gilt Fund generally has an average maturity of 8-11 years, NPS schemes usually have a much higher maturity of 14-17 years. Typically, the longer the maturity of a debt paper, the higher the interest it offers.
Now, we know that the average NPS Fund has beaten their benchmark and their counterparts in Mutual Funds. But, which is the best NPS Fund Manager among all the pension fund managers? To find an answer to this question, let’s examine the performance of different pension fund managers on a yearly basis.
| Yearly Returns Of NPS Funds (Scheme G) | ||||||||
| HDFC | ICICI PRU | SBI | UTI | LIC | KOTAK | ADITYA BIRLA | BENCHMARK* | |
| 2014 | 19.7 | 20.4 | 20.4 | 20.0 | 20.9 | 19.2 | – | 14.6 |
| 2015 | 6.6 | 6.9 | 6.9 | 7.0 | 6.8 | 7.0 | – | 7.6 |
| 2016 | 16.9 | 17.0 | 17.2 | 16.3 | 16.9 | 17.8 | – | 14.8 |
| 2017 | 2.4 | 2.6 | 2.8 | 2.0 | 4.3 | 2.5 | – | -0.5 |
| 2018 | 8.9 | 8.7 | 8.7 | 7.8 | 10.5 | 8.5 | 8.3 | 5.8 |
| 2019 | 12.6 | 12.2 | 12.5 | 12.9 | 14.0 | 12.8 | 12.8 | 10.2 |
| 2020 | 14.3 | 13.3 | 13.5 | 13.0 | 13.7 | 13.2 | 13.4 | 8.3 |
| 2021** | 1.5 | 1.8 | 1.7 | 1.2 | 1.6 | 2.0 | 1.8 | 1.0 |
* NIFTY 10 Year Benchmark G-Sec Index
** 1-Jan-2021 To 29-Oct-2021
As the table shows, all the 7 fund managers have outperformed the NIFTY 10 Year Benchmark G-Sec index in each of the last 8 years except the year 2015.
When you look at the same data from a ranking perspective, the returns delivered by the LIC Pension Fund stand out. The fund manager is outscoring the others in as many as 4 in the last 8 years.
| Ranking On Yearly Returns Of NPS Funds (Scheme G) | |||||||
| HDFC | ICICI PRU | SBI | UTI | LIC | KOTAK | ADITYA BIRLA | |
| 2014 | 5 | 3 | 2 | 4 | 1 | 6 | – |
| 2015 | 6 | 4 | 3 | 1 | 5 | 2 | – |
| 2016 | 5 | 3 | 2 | 6 | 4 | 1 | – |
| 2017 | 5 | 3 | 2 | 6 | 1 | 4 | – |
| 2018 | 2 | 3 | 4 | 7 | 1 | 5 | 6 |
| 2019 | 5 | 7 | 6 | 2 | 1 | 3 | 4 |
| 2020 | 1 | 5 | 3 | 7 | 2 | 6 | 4 |
| 2021* | 6 | 3 | 4 | 7 | 5 | 1 | 2 |
As the table shows, LIC Pension Fund’s Asset G schemes have been the top performers in the last few years, with SBI coming in a distant second.
NPS Fund Performance: Scheme C
In the last 8 years, the performance of corporate debt funds across different pension fund managers has been remarkably similar to government bonds.
From a benchmarking perspective, the average NPS fund has delivered a little higher returns when compared to the S&P BSE Corporate Bond Index.
| Annualized Returns Of NPS Funds (Scheme C) | |||||||
| HDFC | ICICI PRU | SBI | UTI | LIC | KOTAK | ADITYA BIRLA | |
| 8 Years | 10.2% | 10.1% | 9.9% | 9.6% | 9.9% | 9.6% | – |
| S&P BSE CORPORATE BOND INDEX | 9.5% | ||||||
Data From01-NOV-2013 TO 29-OCT-2021
Now, one of the reasons that come up for this overperformance is the composition of instruments in the NPS Scheme C funds. Until 2017, the NPS funds were allowed to invest in corporate debt instruments like rupee bonds, listed debt issued by banks, corporates, Tier 1 bonds, etc., as long as the rating was AA and above.
However, in 2018, the PFRDA amended NPS guidelines. Now, NPS funds can include instruments with an ‘A’ rating, as long as this exposure was not more than 10% of the corporate bond portfolio.
This small yet significant exposure in these slightly lower-rated papers might be one reason that has led to higher returns for the NPS funds.
The second reason could be the average maturity of the debt instruments held in NPS Funds. A number of NPS schemes have an average maturity of 6-7 years, while the corresponding corporate debt mutual funds have a lower maturity of 3-4 years. It, too, plays a part, as debt instruments with a higher maturity tend to deliver higher returns, although they come with a lot more volatility.
Nonetheless, the idea here is to examine the performance of the 7 pension fund managers. And the following table shows that most NPS Funds have outperformed the S&P BSE Corporate Bond Index in most years, although there have been some exceptions.
| Yearly Returns Of NPS Funds (Scheme C) | ||||||||
| HDFC | ICICI PRU | SBI | UTI | LIC | KOTAK | ADITYA BIRLA | BENCHMARK* | |
| 2014 | 14.1 | 14.6 | 14.7 | 14.3 | 13.8 | 14.6 | – | 13.5 |
| 2015 | 9.9 | 10.9 | 9.5 | 9.5 | 10.7 | 9.8 | – | 9.1 |
| 2016 | 13.3 | 13.8 | 13.5 | 13.5 | 13.4 | 14.2 | – | 11.1 |
| 2017 | 6.5 | 6.1 | 6.0 | 5.9 | 5.6 | 5.8 | – | 6.3 |
| 2018 | 5.4 | 6.1 | 6.0 | 5.1 | 5.2 | 4.9 | 6.1 | 7.4 |
| 2019 | 13.6 | 13.1 | 12.9 | 11.1 | 12.7 | 11.5 | 13.3 | 10.1 |
| 2020 | 12.4 | 11.3 | 12.1 | 13.0 | 12.9 | 10.6 | 12.5 | 12.0 |
| 2021* | 5.0 | 4.6 | 4.4 | 4.0 | 4.3 | 4.5 | 4.3 | 5.2 |
| * S&P BSE CORPORATE BOND INDEX | ||||||||
| ** 1-JAN-2021 TO 29-OCT-2021 | ||||||||
When you convert this table into a rank-based comparison, the Scheme C funds of HDFC and ICICI Prudential seem to show reasonable performance and consistency over the years.
| Ranking On Yearly Returns Of NPS Funds (Scheme C) | |||||||
| HDFC | ICICI PRU | SBI | UTI | LIC | KOTAK | ADITYA BIRLA | |
| 2014 | 5 | 3 | 1 | 4 | 6 | 2 | – |
| 2015 | 3 | 1 | 6 | 5 | 2 | 4 | – |
| 2016 | 6 | 2 | 3 | 4 | 5 | 1 | – |
| 2017 | 1 | 2 | 3 | 4 | 6 | 5 | – |
| 2018 | 4 | 2 | 3 | 6 | 5 | 7 | 1 |
| 2019 | 1 | 3 | 4 | 7 | 5 | 6 | 2 |
| 2020 | 4 | 6 | 5 | 1 | 2 | 7 | 3 |
| 2021* | 1 | 2 | 4 | 7 | 6 | 3 | 5 |
| * 1-JAN-2021 TO 29-OCT-2021 | |||||||
NPS Fund Performance: Scheme E
When it comes to equities, all pension fund managers seem to move as a unified group. If you look at the annualized returns of the last 8 years, returns from most funds are around the average of 14.5%, with only HDFC and LIC a bit further off.
From a benchmarking standpoint, since different funds might be following a different index, let’s use the NIFTY 50 TRI and the NIFTY 200 TRI index as our reference points.
| Annualized Returns Of NPS Funds (Scheme E) | |||||||
| HDFC | ICICI PRU | SBI | UTI | LIC | KOTAK | ADITYA BIRLA | |
| 8 Years | 15.3% | 14.6% | 14.1% | 14.7% | 13.5% | 14.6% | – |
| NIFTY 50 TRI | 15.3% | ||||||
| NIFTY 200 TRI | 16.3% | ||||||
| DATA FROM 01-NOV-2013 TO 29-OCT-2021 | |||||||
As the table shows, every NPS Fund has underperformed the NIFTY 200 TRI and NIFTY 50 TRI. Only the HDFC Pension matches the NIFTY 50 TRI performance over 8 years.
From a holding perspective, most NPS equity schemes have a heavy large-cap bias.
| Large Cap Companies In Equity Scheme | |
| Pension Fund Manager | % |
| Aditya Birla Sun Life | 95 |
| HDFC | 93 |
| ICICI Prudential | 91 |
| Kotak Mahindra | 98 |
| LIC | 91 |
| SBI | 96 |
| UTI | 92 |
| Data As Of May 2021 | |
As the table shows, every NPS Fund has at least 90% of its holdings in large-cap stocks. The large-cap stocks bias explains why the performance of these funds has been more or less similar to one another.
| Yearly Returns Of NPS Funds (Scheme E) | |||||||||
| HDFC | ICICI PRU | SBI | UTI | LIC | KOTAK | ADITYA A BIRLA | NIFTY 50 TRI | NIFTY 200 TRI | |
| 2014 | 33.1 | 33.5 | 32.7 | 32.4 | 29.0 | 32.7 | – | 33.0 | 37.5 |
| 2015 | -2.7 | -2.6 | -2.6 | -1.2 | -3.3 | -2.3 | – | -2.8 | -0.5 |
| 2016 | 6.6 | 5.6 | 7.3 | 6.5 | 6.0 | 4.8 | – | 4.2 | 4.7 |
| 2017 | 31.7 | 29.0 | 28.0 | 31.0 | 27.6 | 34.5 | – | 29.3 | 34.1 |
| 2018 | 2.0 | 0.9 | 2.4 | 1.7 | 0.2 | -2.5 | 1.1 | 6.1 | 1.4 |
| 2019 | 11.9 | 11.5 | 9.3 | 9.1 | 8.2 | 12.4 | 10.1 | 13.1 | 9.8 |
| 2020 | 16.5 | 15.2 | 15.0 | 14.4 | 12.8 | 14.4 | 16.4 | 16.3 | 17.2 |
| 2021* | 28.4 | 28.8 | 25.9 | 27.8 | 30.1 | 29.3 | 24.5 | 29.3 | 31.7 |
| * 1-JAN-2021 TO 29-OCT-2021 | |||||||||
Now, most NPS equity funds have generally underperformed the broader index in most years. Nevertheless, there are some exceptions from time to time as well. And it’s this pattern of underperformance and overperformance that you can use to decide which NPS funds have done better than others.
| Ranking On Yearly Returns Of NPS Funds (Scheme E) | |||||||
| HDFC | ICICI PRU | SBI | UTI | LIC | KOTAK | ADITYA BIRLA | |
| 2014 | 2 | 1 | 3 | 5 | 6 | 4 | – |
| 2015 | 5 | 3 | 4 | 1 | 6 | 2 | – |
| 2016 | 2 | 5 | 1 | 3 | 4 | 6 | – |
| 2017 | 2 | 4 | 5 | 3 | 6 | 1 | – |
| 2018 | 2 | 5 | 1 | 3 | 6 | 7 | 4 |
| 2019 | 2 | 3 | 5 | 6 | 7 | 1 | 4 |
| 2020 | 1 | 3 | 4 | 6 | 7 | 5 | 2 |
| 2021* | 4 | 3 | 6 | 5 | 1 | 2 | 7 |
| * 1-JAN-2021 TO 29-OCT-2021 | |||||||
Take, for instance, HDFC Pension Fund. It has ranked 1st or 2nd in 6 of the last 8 years, making it the most consistent amongst all NPS equity funds.
On the other hand, SBI and Kotak Mahindra pensions funds have seen a few years of relatively high performance and some years of low performance.
Selecting Best Pension Fund Manager To Invest In NPS
While the NPS rules allow subscribers to have different pension fund managers for their Tier 1 and Tier 2 accounts, the rules do not permit subscribers to choose different fund managers for different schemes within the same tier.
In other words, you cannot have SBI Pension Fund for government securities, Kotak Fund for equities, and HDFC Fund for corporate debt. If you choose the SBI Pension Fund, your equity fund, corporate debt fund, government securities, and alternative investment fund will all be from SBI.
Thus, selecting a fund manager is not a specific asset class exercise. It requires you to look at how the pension fund manager has performed on a portfolio basis.
For this purpose, let’s build four simple personas of an aggressive investor, a moderate investor, a conservative investor, and a super safe investor.
Here’s how these 4 types of investors will split their asset allocation among equities, corporate bonds, and government bonds.
| Type Of Asset Class | |||
| Investor Persona | Equity (E) | Corporate Bonds (C) | Government Bonds (G) |
| Aggressive | 75% | 10% | 15% |
| Moderate | 50% | 25% | 25% |
| Conservative | 25% | 20% | 55% |
| Super Safe | 5% | 15% | 80% |
Now, let’s apply these specific percentages over 8 years of data, i.e., from 2014 to 2021. And also, ensure that we rebalance the portfolio every year, which is precisely how the pension funds would also do it
| Average Annual Returns (2014 – 2021) | ||||||
| HDFC | ICICI PRU | SBI | UTI | LIC | KOTAK | |
| Aggressive | 14.1% | 13.6% | 13.3% | 13.5% | 12.6% | 13.6% |
| Moderate | 13.9% | 13.6% | 13.5% | 13.4% | 12.7% | 13.4% |
| Conservative | 13.2% | 13.0% | 13.0% | 12.8% | 12.9% | 12.9% |
| Super Safe | 12.5% | 12.5% | 12.6% | 12.2% | 13.0% | 12.3% |
| DATA FROM 01-JAN-2014 TO 29-OCT-2021 | ||||||
The above table shows us the final results. The HDFC equity schemes did a little better than the other funds. That is why it leads the race in our aggressive, moderate, and conservative allocation.
Similarly, since the LIC fund has delivered the best returns with government securities, it holds the top spot in the super safe category.
No Outright Winner Among NPS Fund Managers
But overall, it is hard to declare an outright best NPS Fund Manager with all pension fund managers carefully operating around an average.
| Distance From Average | ||||||
| HDFC | ICICI PRU | SBI | UTI | LIC | KOTAK | |
| Aggressive | + 0.7% | + 0.1% | – 0.2% | + 0.1% | – 0.8% | + 0.1% |
| Moderate | + 0.5% | + 0.2% | + 0.1% | – | – 0.7% | – |
| Conservative | + 0.2% | + 0.1% | + 0.1% | – 0.2% | 0.0% | – 0.1% |
| Super Safe | – | – | – | – 0.3% | + 0.5 | – 0.2% |
| 8 YEAR CAGR HAS BEEN TAKEN FOR THIS STUDY | ||||||
| DATA FROM 01-JAN-2014 TO 29-OCT-2021 | ||||||
While the HDFC Pension Fund has outperformed the average by 0.7% in an aggressive environment, it is still a marginal number. And it doesn’t give investors a significant margin of selection safety.
That said, the trend may change going forward. And that is on account of some regulatory modifications that the PFRDA has done on the fund management front. Some of the significant changes that PFRDA has brought are that NPS Funds can now invest in mid-cap stocks and IPOs. We have covered the impact of these changes in our blog New Rules for NPS Fund Managers: How Will They Impact Your Returns.
Bottom Line
Overall, many innovations and regulatory improvements are likely to come up in the NPS space. The PFRDA and the government aim to make the National Pension System India’s primary retirement savings vehicle. And so far, the performance of NPS funds has been supporting this goal by delivering returns that are far ahead of the inflation rate and what investors generally receive from small saving schemes like the PPF and National Savings Certificate.
NPS is undoubtedly one space to watch out for, and if you haven’t opened your account yet, then do check out theNPS sectionon the ET Money app for a quick, paperless joining process.
