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India’s National Pension System (NPS) Tier 2 account offers a choice between 8 different pension fund managers. It does not have tax benefits or a lock-in for private sector subscribers. For government employees, it has a 3 year lock-in and tax benefits under Section 80C of the Income Tax Act.
In case of NPS tier 2 investments across different asset classes, the returns vary between different pension fund managers as well as among different asset classes however you are required to choose the same one for all fund categories. This means that you are not allowed to pick separate fund managers for the equity, corporate bond and government bond portions of the portfolio. With this is mind, we calculated the long term returns (5 year returns) offered by different pension funds for NPS tier 2 investments and found that UTI Retirement Solutions came out on top in case of various representative portfolios. These 5 year calculations are relevant considering that typically NPS is a long-term investment.
Long Term Performance of Various Pension Plans
The following are returns of a NPS Tier 2 portfolio featuring 75% Equity and 25% Corporate Bonds allocation*:
| Pension Fund | 5 Year Returns (Equity) | 5 Year Returns (Corporate Bond) | Returns on a 75 Equity+25 Corporate Bond Portfolio |
| UTI Retirement Solutions Ltd. | 14.11% | 9.41% | 12.93% |
| SBI Pension Funds Pvt. Ltd | 13.24% | 9.60% | 12.33% |
| ICICI Pru. Pension Fund Mgmt Co. Ltd. | 12.83% | 9.97% | 12.11% |
| Kotak Mahindra Pension Fund Ltd. | 12.70% | 9.44% | 11.89% |
| Reliance Capital Pension Fund Ltd. | 12.35% | 9.66% | 11.68% |
| HDFC Pension Management Co. Ltd. | 11.79% | 8.57% | 10.98% |
| LIC Pension Fund Ltd. | 9.59% | 8.59% | 9.34% |
*Data Source – NPS Trust, as on November 30, 2018
In the above case, it is evident that as a NPS pension fund manager, UTI Retirement Solutions has outperformed its peers by a significant margin in case of a Tier 2 portfolio with 75% equities and 25% corporate bonds allocation.
Following are the returns of a NPS Tier 2 portfolio featuring 50% Equity, 25% corporate bonds and 25% government bonds allocation*:
| 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 |
| UTI Retirement Solutions Ltd. | 14.11% | 9.41% | 10.17% | 11.95% |
| SBI Pension Funds Pvt. Ltd | 13.24% | 9.60% | 10.48% | 11.64% |
| ICICI Pru. Pension Fund Mgmt Co. Ltd. | 12.83% | 9.97% | 10.41% | 11.51% |
| Kotak Mahindra Pension Fund Ltd. | 12.70% | 9.44% | 10.28% | 11.28% |
| Reliance Capital Pension Fund Ltd. | 12.35% | 9.66% | 10.29% | 11.16% |
| HDFC Pension Management Co. Ltd. | 11.79% | 8.57% | 10.18% | 10.58% |
| LIC Pension Fund Ltd. | 9.59% | 8.59% | 11.01% | 9.70% |
*Data Source – NPS Trust, as on November 30, 2018
In case of a NPS Tier 2 portfolio comprising 50% equity allocation along with additional 25% allocations each to corporate and government bonds too, UTI Retirement Solutions has grown investor’s wealth faster that its peers in the long term.
Following are returns of a NPS Tier 2 portfolio featuring equal allocation 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 |
| UTI Retirement Solutions Ltd. | 14.11% | 9.41% | 10.17% | 11.23% |
| SBI Pension Funds Pvt. Ltd | 13.24% | 9.60% | 10.48% | 11.10% |
| ICICI Pru. Pension Fund Mgmt Co. Ltd. | 12.83% | 9.97% | 10.41% | 11.07% |
| Kotak Mahindra Pension Fund Ltd. | 12.70% | 9.44% | 10.28% | 10.81% |
| Reliance Capital Pension Fund Ltd. | 12.35% | 9.66% | 10.29% | 10.77% |
| HDFC Pension Management Co. Ltd. | 11.79% | 8.57% | 10.18% | 10.18% |
| LIC Pension Fund Ltd. | 9.59% | 8.59% | 11.01% | 9.73% |
*Data Source – NPS Trust, as on November 30, 2018
Lastly, even if you are invested in a NPS Tier 2 portfolio which features equal proportions of equities, corporate debt and government debt, UTI Retirement Solutions still offers the more lucrative investment option for long term investors.
Methodology Used for Calculating 5 year Returns on NPS Tier 2 Investments
To calculate the returns of NPS portfolios, the following assumptions were made:
- Three types of Tier 2 portfolios were selected:
- Equity and Corporate Bonds with 75% and 25% allocation respectively
- Equity, Corporate Bonds and Government Bonds allocation (50%+25%+25% respectively)
- Equal allocation across the three asset classes (33.33% of portfolio assets allocated to each asset class)
- Representative NPS Tier 2 portfolio returns were calculated based on weight assigned to various instruments in the chosen representative portfolios.
- Results are based on 5 year returns of pension funds as per 30th November 2018 data.
- Birla Pension Fund has been excluded from the list this fund manager does not feature long term returns of 5 years.
- The above calculations are based on historical data and similar levels of performance may not be sustained in the future.
Know More About NPS Returns: Calculation and Interest Rates
