Why should NPS subscribers not worry about negative feedback? | Jobs Vox


The national pension system provides a high return on investment. However, market fluctuations are likely to cause NPS subscribers to worry and have second thoughts.

However, there is indeed good news for all NPS subscribers. The risk-return profile of NPS has undergone significant change. Therefore, investors are given a wider canvas for asset allocation.

Low return equity funds trouble NPS subscribers.

Over the past few years, equity funds have been experiencing negative returns. As mutual fund investments are subject to market risks, NPS investments are also facing the same situation. As a result, subscribers to the National Pension System are also worried.

However, there is not much for NPS subscribers to worry and panic about. The failure and underperformance of equity schemes is mainly due to the recent large bias in the stock market.

Various active NPS managers are known to follow a multi-cap strategy by investing in stocks other than the Nifty. So when the stock market is trending higher, it is clear that equity funds can underperform.

The volatility of NPS is often offset by the National Pension System’s debt component. However, this time the debt portion was weak and failed to act as a cushion.

In such dire situation, many investors were attracted towards EPF and PPF. These provident fund schemes were offering much higher interest rates than NPS.

Market trends in the last few months

National Pension System equity funds underperformed Nifty significantly. Here is a comprehensive list of mid-cap and small-cap NPS market trends:

NPS funds Return rates
Kotak Pension Fund 15.94
Beer Sun Life Pension Plan 14.81
LIC Pension Fund 17.07
HDFC Pension Fund 12.51
ICICI Prudential Pension Fund 11.93
SBI Pension Fund 15.22
UTI Retirement Solutions 14.78

However, long-term investment policies have produced more negative results. Here is a list of all 3 and 5 year investments:

Level 1 NPS Equity Funds 3 years investment 5 years investment
SBI Pension 12.68 12.09
LIC Pension 13.53 11.71
Kotak Pension 14.21 12.32
UTI Retirement Solutions 12.97 12.27
ICICI Prudential Pension 13.94 12.78

The decline in NPS return value is temporary.

You should treat NPS like a strategic investment plan. Because a low cost ratio helps greatly in enhancing long-term performance. So you have to increase allocation for NPS due to underperformance of both debt and equity market.

As you have the opportunity to change your asset allocation twice a year, you can increase your NPS rate of return. In addition, you can invest up to 75% in equity and contribute to increase and balance the rate of return.

Major issues that one should consider while investing in NPS

Although the NPS scheme offers many benefits, there are a few significant risks that you need to consider. So before you start investing in NPS, check out some of the following pointers:

1. NPS comes with principal withdrawal limits, thereby restricting all withdrawals before 60.

2. All government employees are given less benefits compared to previous pension schemes.

3. There are certain account opening restrictions associated with NPS.

4. NPS incurs high tax on withdrawal of corpus.

5. Subscribers investing in NPS face certain investment restrictions.

6. Finally, NPS is a government scheme, though it comes with no guaranteed rate of return.

Major benefits associated with NPS

Here is a comprehensive list of all the important benefits associated with NPS:

1. You can easily maintain your NPS account through your allotted PRAN.

2. NPS is considered as one of the cheapest pension plans worldwide.

3. Your Tier II NPS account is exempt from the restriction despite withdrawal limits.

4. You have the option of opening multiple NPS accounts, thereby creating multiple avenues of investment.

5. Finally, with NPS, you have the option to change your fund manager.

Stop worrying about return drops and start investing today

Ups and downs in the market come and go, so there’s no need to worry about the returns falling. Remember the benefits of NPS and start investing today for a stress-free future.

Author: Sreekanth Nadella, MD and CEO, KFintech

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