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There are 8 pension fund managers in NPS Tier 1. In the first few years of the NPS, they were given very limited choice in the type of companies they could invest in and hence there was little difference between them. However this has changed after new investment norms were notified by the sector regulator (PFRDA). A lot used to also depend on whether you were a government or private sector subscriber because earlier only private sector subscribers could choose between NPS fund managers. However a recent notification of the Central Government has also extended it to government employees. So which pension fund manager do you choose? In this article, we have compared their performance over different allocations to give you the answer.
Which Tier 1 Pension Fund in NPS is Best for You
The National Pension System currently features 8 different pension funds and 3 asset classes – equities, corporate bonds and government bonds. You cannot choose one fund manager for equities and another for corporate bonds and a third for government bonds. The same fund manager gets to manage all your NPS assets. Hence your choice must depend on average performance. We have analysed pension fund manager performance based on different asset allocations and a long term (5 year) track record. We have chosen a relatively long period because NPS is a long term product.
The answer to which Tier 1 Pension Fund is best for you according to our calculations is HDFC Pension Management Ltd. which has out performed its peers in the long term (5 year). This is true for a variety of tier 1 portfolio allocations across equity, corporate bonds and government bonds as shown below.
Long Term Performance of Various Pension Plans
The following are returns from a NPS Tier 1 portfolio consisting of 75% Equity and 25% Corporate Bonds:
| Pension Fund | 5 Year Returns (Equity) | 5 Year Returns (Corporate Bond) | Returns on a 75 Equity+25 Corporate Bond Portfolio |
| HDFC Pension Management Co. Ltd. | 9.04% | 10.23% | 9.33% |
| ICICI Pru. Pension Fund Mgmt Co. Ltd. | 8.15% | 10.58% | 8.75% |
| Kotak Mahindra Pension Fund Ltd. | 8.32% | 10.14% | 8.77% |
| LIC Pension Fund Ltd. | 7.19% | 10.02% | 7.89% |
| Reliance Capital Pension Fund Ltd. | 7.48% | 9.96% | 8.10% |
| SBI Pension Funds Pvt. Ltd | 8.48% | 10.09% | 8.88% |
| UTI Retirement Solutions Ltd. | 8.84% | 9.80% | 9.08% |
*Data Source – NPS Trust, as on July 26, 2018
The above data clearly shows that for a NPS Tier 1 portfolio comprising 75% equities and 25% corporate bonds, HDFC Pension Management is the best choice followed closely by UTI Retirement Solutions.
The following are the returns from a more balanced portfolio consisting of 50% Equity + 25% Corporate Bond + 25% Government Bonds:
| Pension Fund | 5 Year Returns (Equity) | 5 Year Returns (Corporate Bond) | 5 Year Returns (Government Bonds) | Returns on a Portfolio of 50% Equity+25% Corporate Bond + 25% Government Bond |
| HDFC Pension Management Co. Ltd. | 9.04% | 10.23% | 11.05% | 9.84% |
| ICICI Pru. Pension Fund Mgmt Co. Ltd. | 8.15% | 10.58% | 11.09% | 9.49% |
| Kotak Mahindra Pension Fund Ltd. | 8.32% | 10.14% | 11.12% | 9.47% |
| LIC Pension Fund Ltd. | 7.19% | 10.02% | 12.12% | 9.13% |
| Reliance Capital Pension Fund Ltd. | 7.48% | 9.96% | 11.09% | 9.00% |
| SBI Pension Funds Pvt. Ltd | 8.48% | 10.09% | 11.19% | 9.56% |
| UTI Retirement Solutions Ltd. | 8.84% | 9.80% | 10.67% | 9.53% |
*Data Source – NPS Trust, as on July 26, 2019
In this case too, HDFC Pension Management has emerged as the best choice for an investor seeking to invest in a Tier 1 NPS account for a 5 year period.
The following are returns for different pension funds in case investments feature an equal split across Equity, Corporate Bonds and Government Bonds:
| Pension Fund | 5 Year Returns (Equity) | 5 Year Returns (Corporate Bond) | 5 Year Returns (Government Bonds) | Returns on a Portfolio containing equal proportion of Equities, Corporate Bonds and Government Bonds |
| HDFC Pension Management Co. Ltd. | 9.04% | 10.23% | 11.05% | 10.10% |
| ICICI Pru. Pension Fund Mgmt Co. Ltd. | 8.15% | 10.58% | 11.09% | 9.94% |
| Kotak Mahindra Pension Fund Ltd. | 8.32% | 10.14% | 11.12% | 9.86% |
| LIC Pension Fund Ltd. | 7.19% | 10.02% | 12.12% | 9.77% |
| Reliance Capital Pension Fund Ltd. | 7.48% | 9.96% | 11.09% | 9.51% |
| SBI Pension Funds Pvt. Ltd | 8.48% | 10.09% | 11.19% | 9.92% |
| UTI Retirement Solutions Ltd. | 8.84% | 9.80% | 10.67% | 9.77% |
*Data Source – NPS Trust, as on July 26, 2019
In case of the equal split across asset classes portfolio too, HDFC Pension Management emerged as a better choice as compared to its peers. However, the returns from SBI Pension Fund and ICICI Prudential Pension are reasonably close in case of an equal split portfolio.
Methodology Used for Calculating Returns on NPS Investments
In order to calculate the returns of NPS portfolios, the following assumptions were made:
- Three types of Tier 1 portfolios were selected –
- 75% Equity + 25% Corporate Bonds,
- 50% Equity + 25% Corporate Bonds + 25% Government Bonds
- Equal allocation across the three asset classes (33.33%+33.33%+33.33%).
- Portfolio returns have been calculated based on weights assigned to different instruments in the chosen representative portfolios.
- The final returns are based on the 5 year returns of different pension funds as per 30th November 2018 data.
- Birla Pension Fund has not been considered, as being a relatively new entrant, it does not have a long term 5 year track record yet.
- The calculations are based on historical data and the same level of performance may or may not be sustained in the future.
