Best NPS Fund Managers: In which NPS Scheme You Should Invest? (2024)

36-year-old Arpit was pleasantly surprised when he read about the benefits of investing in the 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 NPS benefits, Arpit decided to open an account and invest in it. However, when he tried to find out the best pension fund manager for NPS 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 pension fund manager for NPS. 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 NPS pension fund manager for your portfolio.

NPS Pension Fund Managers In India – The Options You Have

Currently, there are 10 Pension Fund Managers who manage investments by NPS subscribers:

• Aditya Birla Sun Life Pension Management
• Axis Pension Fund Management
• HDFC Pension Management
• ICICI Prudential Pension Fund Management
• Kotak Mahindra Pension Fund
• LIC Pension Fund
• Max Life Pension Fund Management
• SBI Pension Funds
• Tata Pension Management
• UTI Retirement Solutions

Of these Axis, Max Life and Tata are relatively new. They started managing the NPS money only one to two years ago. Since we don’t have much data for them, this article will focus on the rest of the seven fund managers.

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 to Pick Asset Allocation for Your NPS Investments and customize your investments in sync with your risk profile.
In this blog, we are figuring out the best performing NPS funds. So, to that end let’s look at the performance of the seven existing pension fund managers in different asset classes, i.e., Equity, Government Bonds, and Corporate Bonds.
To evaluate which fund manager is best, we have looked at the rolling returns of the scheme and not just the trailing returns. Rolling returns give you a much clearer picture of a fund’s performance.

Now, NPS also offers two types of accounts – . The Tier I account is the main account in which regular contributions made by the subscriber/employer are credited and invested. The Tier II account is optional. In this article, we will talk about the Tier I account only.

Let’s first look at the Tier I equity schemes.

NPS Fund Performance: Scheme E

These schemes invest predominantly in large-cap stocks, and for the analysis, we looked at the average 5-year rolling returns.

What that means is that we have calculated returns across all possible 5-year periods between September-end 2016 and September-end 2023 and then averaged them.

Think of it like this. We have taken the 5-year returns of all the NPS investors between September-end 2016 and September-end 2023 and averaged them. And the results are summarised in the chart below.

The top 3 pension fund managers emerge to be HDFC, ICICI, and Kotak. They have delivered 13.4%, 12.79% and 12.73% average five-year rolling returns, respectively.
However, an important point to note here is that none of the fund managers were able to beat the Nifty 50 index returns. And when we compared them with the Nifty 100, even then, the HDFC Pension Fund was the only one that did better.

Now, while returns are one part of the equation, the other part is volatility. After all, since equities are expected to be volatile, it’s worthwhile to see how the various fund managers have fared in terms of controlling volatility. And, to measure volatility, we used a metric called the standard deviation. The higher the standard deviation, the higher the volatility.

The table below shows the standard deviation of 5 year rolling returns of different pension fund managers. And as you can see, there is hardly any difference here. So, volatility isn’t really a differentiator among NPS fund managers.

Let’s take a look at the NPS returns of schemes belonging to asset class G, i.e., government bonds now.

NPS Fund Performance: Scheme G

These schemes invest in government bonds. And these bonds tend to be of long durations. So, how do the fund managers fare when we compare their average 5-year rolling returns?

The top three fund managers here are LIC, HDFC, and Aditya Birla. With returns of 8.58%, LIC has done considerably better than its peers.
But we need to see how these fund managers have performed against a benchmark. So, we compared their performance to an index of government bonds. It’s called the I-Sec Sovereign Bond Index. It’s one of the oldest and most well-known government bond indexes. And all pension fund managers have performed better than the index.

Now, let’s move to looking at the performance of the schemes of asset class C.

NPS Fund Performance: Scheme C

These schemes are allowed to invest in corporate papers, rupee bonds, bank fixed deposits, debt mutual fund schemes, debt securities issued by REITs and InVITS, and infrastructure bonds.

As per regulations, the majority of their investments have to be in bonds with at least an AA rating. A small part can be invested in securities rated AA- to A

Now, coming to the returns of these schemes. With returns of 8.29%, 8.15%, and 7.98%, HDFC, Birla, and SBI are the top 3 best performing NPS funds in this asset class.

To see if these returns are good enough, we compared it with the category average return of corporate bond funds as the benchmark. What we found was that all fund managers have been able to deliver more than the corporate bond fund category-average return of 7.03% pa.

Finally, let’s take a look at the schemes of asset class A or the alternative investment fund.

NPS Fund Performance: Scheme A

As stated earlier, these schemes invest in unconventional products like REITs, InvITs, perpetual bonds, and so on.

For simplicity, most investors can do without this asset class and focus only on the remaining three.

In any case, the allocation to asset class A is capped at 5%. Plus, if you go for auto allocation, this asset class is not available to you.

However, if you want to experience alternative investing, the chart on your screen shows the scheme A performance of various Tier I fund managers.

With returns of 9.45%, SBI tops the chart here. HDFC and LIC come next, with 8.79% and 7.93% returns There are no benchmark returns here as this segment is not as standardized as the others.

So, above was the performance of NPS schemes under different asset classes. Now, let’s see how you can use this data to select the best nps fund manager for tier 1.

How to pick the best fund manager for your investment?

In the above return data we saw that different pension fund managers performed well in different asset classes. Fortunately, now under NPS investment option, you can pick different fund managers for different asset classes.

It means you can have, for example, HDFC for equity, LIC for government bonds, and SBI for corporate debt. Or any other combination if you so desire.

Earlier, this was not possible, and one had to pick just one fund manager. But this has changed now.

However, do note that for Scheme A, you will have to choose one of the three fund managers that you chose for other schemes. So, if you have HDFC, LIC, and SBI for Schemes E, G, and C, you can’t have, say, Birla for Scheme A. It has to be any one of HDFC, LIC, and SBI only.

So, if you want better NPS returns, all you need to do is choose the best fund manager across asset classes.

Of course, you will need to keep a tab on the performance of various schemes and make changes if a fund manager underperforms consistently. The current rules allow you to change your pension fund managers once in a financial year.

But what if you want to keep it simple and don’t want to choose different fund managers?

For that you can choose a pension fund manager which is doing good across all asset classes.
If you look at the table below, it shows the ranks of various fund managers in terms of their average 5-year rolling returns across different asset classes.

HDFC stands at the top, with all its schemes ranking either 1 or 2. Aditya Birla, LIC, and SBI each have two of their schemes ranking between 1 and 3.

Similarly, there are some laggards too. UTI has 3 of its schemes ranking either 6 or 7. Birla has 2.

So, in terms of average 5-year rolling returns, HDFC is the best pension fund manager, while UTI is the worst.

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 NPS 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.

We hope you found the above analysis of NPS returns of different pension fund managers insightful and that it helps you pick best best-performing NPS funds. NPS is undoubtedly one space to watch out for, and if you wish to open NPS account, then do check the NPS Section of the ET Money app. Furthermore, you can also calculate the NPS amount you will receive as a pension after your retirement (at 60 years).