Initially launched in 2004 for government employees and extended to the private sector in 2009, the NPS enables systematic investment through either monthly contributions or lump sum deposits.
This article compares the five-year returns of leading NPS equity funds against the top-performing large-cap mutual funds.
Understanding NPS and Its Equity Component
Initially launched in 2004 for government employees and extended to the private sector in 2009, the NPS enables systematic investment through either monthly contributions or lump sum deposits.
Subscribers can select either:
- Auto Choice: Funds are allocated automatically across equity, corporate debt, and government securities based on age.
The equity component, known as Scheme E, forms the riskier but potentially higher-yielding segment of the NPS. These investments are largely restricted to large-cap stocks, mostly within the Nifty 50 universe, offering stability but capping potential upside.
- SBI Pension Funds Pvt Ltd
Five-Year Performance: NPS Equity Funds vs Large-Cap Mutual Funds
Top 5 NPS Equity Pension Funds (5-Year CAGR):
- ICICI Prudential Pension Fund – 25.25%
In contrast, the average five-year return for large-cap mutual funds stood at 23.36%.
Two other prominent NPS fund managers underperformed:
This suggests that while NPS equity funds have comfortably outperformed the large-cap mutual fund category average, they lag behind the very best large-cap schemes.
Top 5 Large-Cap Mutual Funds (5-Year Annualised Returns):
- Nippon India Large Cap Fund – 30.10%
(Source: Value Research)
These mutual funds, actively managed and not restricted to specific index weights, have outperformed even the top NPS funds in terms of absolute returns.
While NPS equity funds provide stability, government oversight, and attractive tax benefits, mutual funds offer greater flexibility and, in many cases, better returns. However, NPS remains unmatched in its tax efficiency, particularly under the old tax regime:
- Section 80CCD(1): Up to Rs 1.5 lakh (within Rs 1.5 lakh limit of 80C)
Do note: Individual contributions under 80CCD(1) and 80CCD(1B) are not deductible in the new tax regime.
NPS equity funds have beaten the average performance of large-cap mutual funds over the past five years, highlighting their strong risk-adjusted returns. However, the top-performing mutual funds still maintain an edge in absolute growth. NPS continues to be a compelling retirement vehicle, particularly for long-term, tax-conscious investors seeking government-regulated stability.
