NPS equity schemes HDFC, UTI deliver highest returns over five years

The soaring equity markets have lifted the fortunes of many equity-oriented schemes. National Pension Scheme’s equity funds (scheme E), too, have consistently been delivering double-digit returns annually over five-year horizon in the recent weeks.  

The New Year has been no different, with all pension fund managers reporting annualised returns of over 13 percent over five years, as per data from Value Research. for NPS Tier-I accounts.

Tier-I is the main, retirement account, which does not allow easy withdrawals until you turn 60 – the date of vesting, or maturity. Partial and premature withdrawals are permitted only for specific purposes such as house purchase, treatment of critical illnesses and children’s higher education.

Struggling to beat the Nifty

HDFC Pension Fund remained the top performer with impressive 15.71 percent returns, the only fund to outperform the benchmark Nifty 50 TRI over the five-year period. The index has recorded 15.63 percent returns during the period.

UTI Retirement Solutions was close on its heels with 14.49 percent, while ICICI Prudential Pension Fund notched up 14.43 percent returns annually over the five-year horizon. Four out of six pension funds with track record of at least five years beat their mutual fund counterparts (14.38 percent) too. Compared to large-cap equity mutual funds, which charge an expense ratio of 2.25 percent, NPS schemes’ expense ratio is just 0.01 percentage point at present. Now, it is bound to go up as the Pension Fund Regulatory Authority of India (PFRDA) has floated request for proposals for new pension fund managers. However, even the increased investment management fee will be capped at 0.09 percentage point, apart from 0.03 percentage points as intermediary charges.

In the three-year return period, though, none of the pension funds managed to draw closer to Nifty 50 TRI (11.75 percent). Four out of seven pension funds, however, managed to outperform large-cap equity mutual funds. Even in this category, HDFC Pension Fund turned in the best performance with 10.68 percent return annually over three years.