A sharp fall of 1,600 points in benchmark Nifty50 in October has weighed on the annual returns that pension funds generate on NPS (National Pension System) funds parked in equity schemes.
Against an annual return of nearly 40 percent on September 28, the annual return from equity schemes has fallen to 33.52 percent on November 2, the latest PFRDA data shows.
However, total NPS assets remained stable at ₹13.39 lakh crore on November 2, although growing at a lower YoY growth rate of 29 per cent. At the end of September, total NPS assets stood at ₹13.40 lakh crore, up 32 percent year-on-year.
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Benchmark Nifty50 ended October 2024 in deep red, with a plunge of 6.2 percent. This was the worst monthly performance for Nifty50 since the first wave of Covid-19 hit the world in March 2020. BSESensex saw a decline of 5.83 percent in October.
Although the average annual return on equity schemes fell in October, it was much higher than the 13.87 per cent in central government schemes and 13.97 per cent in state schemes. The average return generated by the pension funds for Atal Pension Yojana last year was 14 percent, while the return since inception was 9.22 percent.
In the past year, thanks to the booming equity markets, NPS money parked in pure equities has delivered astronomical returns of up to 40 percent.
The NPS scheme has generated competitive returns since its inception. For the public sector, the NPS has delivered an average return of 9 percent. For the non-government sector, the equity scheme has delivered a return of 13.7 percent, corporate bonds 9.14 percent and government bonds 8.83 percent.
Private sector assets under management
Private sector NPS asset growth showed moderate growth, growing 40 per cent to ₹2.67 lakh crore on November 2. In October, it stood at ₹2.70 lakh crore, up 44.52 per cent year-on-year.
The number of NPS subscribers in the private sector also saw impressive growth, rising 21 per cent year-on-year to 60.5 lakh, the latest data from the Pension Fund Regulatory and Development Authority (PFRDA) shows.
The strong 40 percent growth of NPS assets in the private sector has substantially exceeded the 27 percent annualized growth of the public sector, albeit at a much higher level.
The NPS assets of the public sector (center and state government) reached ₹10.25 lakh crore on November 2, the PFRDA data showed. This was slightly higher than the AUM of ₹10.23 lakh crore as of September 2024.
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The rise in private sector NPS assets shows its growing popularity as a preferred vehicle for retirement savings, say retirement industry observers. This steady increase in participation underscores the private sector’s continued recognition of NPS as a flexible, cost-effective and tax-efficient solution for long-term financial planning, she added.
While the corporate sector-related NPS accounted for ₹1.98 lakh crore AUM, the ‘All Citizens model’ (individuals) had assets worth ₹68,056 crore.
The number of subscribers in the corporate sector stood at 21.71 lakh, while there are 38.81 lakh subscribers in the ‘All Citizen model’.
Main attraction
One of the key attractions for this private sector adoption in recent years is the ‘flexibility’ that NPS offers in choosing the investment pattern for such subscribers. PFRDA had recently further expanded the choice for the non-government sector with the launch of the Balanced Life Cycle Fund.
Unlike the NPS for the government sector, the scheme for the non-government sector (all citizens and companies) allows the NPS to choose their asset allocation between equities, government bonds, corporate bonds and alternative investments, depending on their risk appetite.
This freedom appeals to a wide range of private sector workers, from young professionals looking to maximize equity returns to risk-averse older workers who prefer safer options. This flexibility also fits in with the changing financial mindset, as individuals increasingly seek personalized investment choices.
Moreover, NPS distinguishes itself by its ‘cost-effectiveness’. With a low fund management fee of around 0.09 percent, it is one of the most economical long-term savings instruments in India.
