NATIONAL PENSION SCHEME- HOW TO INVEST? WHERE TO INVEST?
When Indian Government did away with Pillar Two of Defined Benefit Scheme,
investing in pension schemes became a tax saving scheme and an expense for people;
factors like individual myopia, low earnings and bad planning came into play. Then
came National Pension Scheme, under Pillar Three of the World Bank, a voluntary
pension investment scheme to provide old age income. The scheme is popular
amongst the organized sector but in India less percentage of people are involved in
organized sector the coverage is only that of 1.03 cr subscribers as of 2017.
The ever-changing demography makes it even more important for Indians to invest
in voluntary pension schemes like National Pension Schemes and Atal Pension
Yojna and many more. India is now a greying country with projected increase of
people over 60 from ~8.9% of the population to ~19.4% by 2050. The inter-
generational support as well plays a huge role in making the NPS an important
investing.
NPS is a defined contribution plan which pools all the investment together, the
scheme is market oriented which is regulated as well as managed by Pension Fund
Regulatory and Development Authority (PFRDA). To invest in NPS one must
choose a fund manager between eight major fund managers in India like ICICI
Prudential Pension Funds Management Company Limited, UTI Retirement
Solutions Limited or LIC Pension Fund Limited to name a few, after the choice has
been made an individual would have to choose between Tier 1 and Tier 2 accounts.
Tier 1 demands a minimum deposit of Rs.500 and is mandatorily required for the
pension scheme and Tier 2 gives withdrawal flexibility and is optional. Once the
account is opened you can contribute to the scheme on a monthly basis. One can
either have an Active Choice wherein the subscriber will have a choice to manage
his wealth as well as allocate his asset accordingly. In the Auto Choice the subscriber
will have to choose a pre-defined portfolio holding three types of asset classes.
Having a thorough knowledge about market helps one’s case in managing the
portfolio.
In the Asset Class E which is predominantly constitutes of Equity, the top performer
is HDFC Pension Management Co. Ltd. showed return of 8.93%. UTI Retirement
Solutions Limited showed the return of 8.63% on the Asset Class E portfolio.
In the Asset C class which constitutes of fixed instruments other that government
securities, the top performer was ICICI Prudential Pension Funds Management
Company Limited with 5 year return on portfolio is at 10.68% beating the 10.24%
benchmark. SBI Pension Funds Private Limited with 5year return on portfolio at
10.23%
In Asset G class which is majorly made up of government securities the top
performer was, LIC Pension Fund Limited with 5 year return on portfolio being
12.31% beating the 5 year benchmark of 10.76%. SBI Pension Funds Private
Limited showing 5 year return of 11.42%.
Since its inception, ICICI Prudential Pension Funds Management Company Limited
showed return of 10.79% in the Asset E class, ICICI Prudential Pension Funds
Management Company Limited showed return of 10.69% in Asset C class category
and LIC Pension Fund Limited showed return of 12.25% in the Asset G class
category.
The funds were lucrative to invest in as they continuously beaten the 5-year
benchmark, ICICI Prudential Pension Funds Management Company Limited for
example showed steady growth in several asset classes. LIC Pension Fund Limited
was no behind in returns but SBI PF has shown steady growth and stable returns
across the asset classes which makes the fund lucrative. In my opinion, SBI PF
should be preferred by any individual looking for investing in National Pension
Scheme, taking into consideration the returns and growth.
5 YEAR RETURN ON DIFFERENT ASSET
CLASSES OF NPS
HDFCPM UTIRSL ICICI Pru. SBI PF LIC PF
12.31%
11.42%
11.32%
11.32%
10.81%
10.68%
10.35%
10.24%
10.14%
9.95%
8.93%
8.63%
8.36%
7.95%
7.01%
CLASS E CLASS C CLASS G
Source: npstrust.org.in
