LIC, HDFC Pension Funds top the NPS G-sec returns chart

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G-sec Tier 2 funds deliver double-digit returns, beat benchmark and mutual funds

Moneycontrol PF Team

January 01, 2021 / 10:50 AM IST

Nearly all National Pension System (NPS) Tier-II account government securities funds delivered impressive double-digit returns over three years. The seven pension fund managers’ schemes yielded returns between 11.01 percent and 13.5 percent annually over three years, against benchmark CCIL All Sovereign Bond’s 11.02 percent and gilt mutual funds’ (10-year constant duration) 10.78 percent.

LIC Pension Fund remains numero uno

LIC Pension Fund maintained its lead over its peers in Tier-II, too, landing the top spot with 13.5 percent returns over three years, as per data from Value Research. Close on its heels was HDFC Pension Fund, ahead of rest of the funds with 11.7 percent return.

LIC Pension Fund was the top performer over the five-year return period, too, notching up 11.88 percent. All NPS funds outscored their benchmark as well as mutual fund counterparts over this return horizon, in line with their stellar performance through the year.

Why NPS Tier-II accounts

Unlike NPS Tier-1 account – or retirement accounts which mature only when you turn 60 – Tier-II accounts come with a lot of flexibility on withdrawals. Since these are investment accounts, you can make withdrawals as per your requirement. However, Tier-II accounts do not offer any tax benefits under section 80C, except for government employees. The low expense ratio of one basis point makes this avenue an attractive proposition for investors. And, it will remain so even when charges go up next year, post selection of new pension fund managers by the Pension Fund Regulatory and Development Authority (PFRDA). Even at 0.09 percent – the maximum proposed investment management fee – and 0.03 percent intermediary charges for equity schemes, NPS will remain the cheapest avenue compared to mutual funds and other financial instruments.

To invest in Tier-II accounts, you have to mandatorily open Tier-I retirement account. You have to contribute Rs 1,000 at the time of opening the account, with Rs 250 being minimum subsequent contributions. However, since it is a voluntary account, it is not mandatory to invest in a year. You can select a pension fund manager of your choice amongst the seven that offer these services currently. Your Tier-II pension fund manager need not be the same as that of your Tier-I account. Investment norms will be similar to those of Tier-I accounts, with subscribers under 50 being allowed up to 75 percent exposure to equity asset class. Alternatively, you can opt for auto choice investment option for managing your corpus.

Moneycontrol PF Team