NPS equity funds: UTI pension the top long-term performer, DSP outdoes peers in the short term

NPS offers several tax benefits, but taxability of annuity income is often seen as a limitation

Most National Pension System (NPS) equity funds, or schemes E, have not only beaten benchmark index Nifty 200 TRI, but also large-cap mutual funds over three- and five-year periods, data from ACE Equity and NPS Trust shows.

Even in the short-term – one year – seven out of 11 pension equity schemes have outperformed the benchmark as well as average returns delivered by large-cap mutual funds (see table), as per the data as of March 7, 2025.

The NPS returns show

New entrant DSP Pension Fund Managers’ equity scheme was the topmost performer by a distance over the one-year period yielding 13.75 percent returns, with its closest competitor – UTI Pension Fund – delivering 3.61 percent. Nifty 200 TRI posted 1 percent return during the period, while the large-cap equity mutual fund category posted a 1.16 percent returns.

Max Life Pension Fund and SBI Pension Funds brought up the in the rear in the one-year performance category, posting negative returns of -0.44 percent and -3.59 percent respectively, pulling down equity pension schemes’ performance as a category.

Do note, however, that financial experts do not recommend taking calls on investing or exiting funds based on short-term performances of one year, particularly for pension funds that are meant for retirement and hence necessitate long-term commitment.

Also read: Opting for the new tax regime? Here’s how you can increase your tax savings

Long-term performance a mixed bag

Over the five-year period, only two out of the seven equity pension schemes with long-term track record outperformed the benchmark, though six of them outdid the category average returns of large-cap mutual funds. UTI Pension’s equity scheme was the top performer in this category, reporting five-year returns of 17.38 percent, followed by ICICI Prudential Pension Fund with 17.13 percent. In comparison, Nifty 200 TRI reported 17.08 percent returns, with the large-cap equity mutual fund category posting an average return of 14.89 percent during the period.

Also read: How your employer's contribution to your NPS can reduce your tax outgo

NPS, a voluntary retirement scheme for Indian citizens

Indian citizens between 18-70 years of age can invest in NPS to create a nest egg for their retirement.

The scheme offers a range of tax benefits under the old tax regime including deduction under section 80C of up to Rs 1.5 lakh on own contribution, besides an additional deduction of up to Rs 50,000 under section 80CCD(1B). In addition, your employers’ contribution to your NPS can also fetch you a tax break under section 80CCD(2). Under the old tax regime, the limit is 10 percent of basic salary and dearness allowance, if any, while this is higher at 14 percent under the new tax regime.

At the age of vesting, that is, 60 years unless you decide to defer the redemption, you can withdraw up to 60 percent of the corpus as tax-free lump-sum, while the balance has to be converted into annuities. This income is taxable as per the slab rate applicable to you.