NPS sees remarkable 650% growth in voluntary subscribers' AUM, outpacing other segments

The National Pension System (NPS) is increasingly being recognised as a retirement product among the common citizens in India.

Data from the Handbook of NPS Statistics 2023 released by the Pension Fund Regulatory and Development Authority (PFRDA) shows that assets held in the NPS by voluntary subscribers grew at the highest rate among the various segments of subscribers.

The NPS was first introduced for central and state government employees on January 1, 2004. It was extended to the general public from May 1, 2009, under the ‘All citizens model’. Individuals subscribing to NPS voluntarily are classified under All Citizen Sector.

NPS subscribers are divided into sectors – CG sector (central government employees), SG sector (state government employees), Corporate sector (NPS offered to private sector employees by their employers), All Citizen sector (individuals voluntarily subscribing to NPS), NPS Lite and Atal Pension Yojana (APY).

In the last five years, the assets managed by the NPS in all citizen model grew at the highest rate of 650 percent to Rs 38,892 crore as of March 2023. The next two sectors are APY and corporates with a growth of 613 percent and 449 percent, respectively.

Currently, there are about 30 lakh voluntary subscribers under the all citizen model.

The government has from time to time come out with regulatory measures to fine-tune the structure and taxation to make NPS more attractive. Currently, NPS gives a subscriber the option to withdraw 60 percent of his corpus at the age of 60. A subscriber also has the option of deferring this lumpsum withdrawal till 75 years of age. But the remaining 40 percent has to be invested in an annuity scheme for a regular pension.

One of the other reasons why the NPS is becoming popular among savers and investors is its attractive fund options. Under the all citizen model, NPS offer two types of accounts: Tier I and II. Tier I is a mandatory retirement account whereas Tier II is a voluntary saving account. The subscribers are allowed to invest their regular contribution in four fund options; Scheme – E (Equity), Scheme – C (Corporate bonds), Scheme – G (Government securities) and Scheme – A (Alternative investments). Currently, there are 11 pension fund managers managing portfolios for these respective schemes.

However, a Moneycontrol rolling return analysis on the NPS data available from the Handbook of NPS Statistics 2023 shows that all the Tier I equity schemes delivered decent returns but underperformed the broader index Nifty 100 – TRI due to their conservative investment approach. Meanwhile, the Tier I corporate bond and government securities schemes comfortably beat the relevant categories of mutual fund counterparts.