Nps Tier 1 Investment Options

Nps tier 1 investment options

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Many of us investing in NPS (National Pension Scheme). But have you ever checked NPS Returns for 2018? Whether you analyzed who is the best NPS Fund Manager for 2018 or which is the best NPS Scheme for 2018?

NPS now slowly turning to be one of the major investment choices for many of us.

It may be due to default option provided to Government employees, tax benefits at the time of investment or to create a retirement corpus.

What is Scheme Preference in NPS Account

In NPS, there are two types of options available to create your portfolio.

They are as below.

Nps tier 1 investment options

Remember this scheme preference is not available for Government Employees Tier 1 Account Type. However, they have a freedom to choose scheme preference in their Tier 2 account. For rest of all investors, you have an option to choose scheme preference.

# Active choice – You will decide on the asset classes in which the contributed funds are to be invested and their percentages (Asset class E-Maximum of 50%, Asset Class C, and Asset Class G ).

Auto choice– Lifecycle Fund– This is the default option under NPS and wherein the management of investment of funds is done automatically based on the age profile of the subscriber.

At the age of 18 years, the auto choice will invest 50% of pension wealth in E Class, 30% in C Class and 20% in G-Class. These ratios of investment will remain fixed for all contributions until the participant reaches the age of 36 yrs.

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From age 36 yrs onwards, the weight in E and C asset class will decrease annually and the weight in G class will increase annually till it reaches 10% in E, 10% in C and 80% in G class at age 55 yrs.

At the age of 18 years, the auto choice will invest 50% of pension wealth in E Class, 30% in C Class and 20% in G-Class. These ratios of investment will remain fixed for all contributions until the participant reaches the age of 36 yrs.

From age 36 yrs onwards, the weight in E and C asset class will decrease annually and the weight in G class will increase annually till it reaches 10% in E, 10% in C and 80% in G class at age 55 yrs.

Such changes will be done on the birth date of the subscriber. Such changes can be done once in a financial year.

What are the types of funds available in NPS?

There are three types of NPS funds available. They are as below.

  1. Asset Class E : Invest in equity market instruments.

    Nps tier 1 investment options

    This is the riskier asset class among all three.

  2. Asset Class G : Invest in fixed income instruments. The best example of this is central government bond. This is the secured among all three.
  3. Asset Class C : Invest in fixed income instruments. Examples of these are bonds issued by firms or companies.

    Nps tier 1 investment options

    this neither risky like Asset Class E nor safe like Asset Class G.

Recently a new fund category by name Alternate investment has been introduced.

List of NPS Fund Managers

Currently, there are 8 Fund Managers who are managing our NPS corpus and they are as below.

  1. Birla Sun Life Pension Scheme
  2. HDFC Pension Fund
  3. ICICI Prudential Pension Fund
  4. Kotak Pension Fund
  5. LIC Pension Fund
  6. Reliance Capital Pension Fund
  7. SBI Pension Fund
  8. UTI Retirement Solutions

The Government employees NPS accounts and contributions are managed by LIC Pension Fund, SBI Pension Fund and UTI.

Under this category, up to 15% of the corpus can only be invested in Equity Fund.

The remaining corpus is allocated to Corporate Bonds and Govt securities.

The private sector employees and other individuals can also invest in NPS. The Equity fund threshold limit is 75% in this case. These individuals can select any of the two investment options to select scheme preferences.

NPS Returns for 2018 – Who is best NPS Fund Manager?

Now let us concentrate on NPS Returns for 2018 and try to find who is the best NPS Fund Manager for 2018 or which is the best NPS fund for 2018.

NPS Returns for 2018- Best NPS Fund under Central Government Scheme

As I said above, this scheme is meant for Central Government Employees only.

Should you use NPS Tier II account instead of mutual funds

Here, we can find only three fund managers and the returns are as below.

 

# Fund Managers managing the scheme since 1st April 2008.

# SBI Manages the highest AUM (29254.83 Cr) followed by UTI (27490.44 Cr) and LIC (25532.34 Cr).

# When you compare 10 years returns, SBI tops with almost 10% returns (9.94%) and then LIC and UTI almost generated around 9.6% returns.

#All Fund Managers debt portfolio hold Govt Bonds which maturing from 2030 to around 2045.

Hence, any interest rate fluctuation will impact the return badly. Because of longer the maturity period higher the interest rate impact on bond.

# Top 3 holdings of SBI Fund Manager is G-Sec, Banking and Financial Institutions.

LIC Fund Manager holding is Govt. Sec, Finance, Banks.

NPS Returns for 2018 – Who is best NPS Fund Manager?

However, with UTI, it is Banks, Other credit granting, Housing credit Institutions.

# Benchmark return for 5 years is 9.03%, 3 years is 7.3%, 2 years is 9.48% and for 1 year it is 4.53%. Hence, all three fund managers have beaten the benchmark consistently since 5 years.

NPS Returns for 2018- Best NPS Fund under State Government Scheme

Now let us go with NPS Returns for 2018 under State Government Scheme.

Here also you will find 3 fund managers like central government NPS. Let us see the performance.

# Fund Managers managing the scheme since 25th June 2009.

# SBI Manages the highest AUM (37751.06 Cr) followed by UTI (36790.49 Cr) and LIC (36476.09 Cr).

# When you compare 9 years returns, LIC tops with 9.66% returns and then UTI (9.6%) and SBI (9.49%).

#All Fund Managers debt portfolio hold Govt Bonds which maturing from 2030 (UTI holding bond maturing in the year of 2029) to around 2045.

Hence, any interest rate fluctuation will impact the return badly. Because of longer the maturity period higher the interest rate impact on bond.

# Top 3 holdings of SBI Fund Manager is G-Sec, Banking, and Financial Institutions. LIC Fund Manager holding is Govt.

Investment Choice for Asset Allocation:

Sec, Finance, and Banks. However, with UTI, it is Banks, Other credit granting, Housing credit Institutions.

# Benchmark return for 5 years is 9.03%, 3 years is 7.3%, 2 years is 9.48% and for 1 year it is 4.53%.

Hence, all three fund managers have beaten the benchmark consistently since 5 years.

NPS Returns for 2018 – Best Performing NPS Tier 1 – Scheme E Fund Returns

Now let us concentrate on NPS Returns for 2018 in Tier 1 Scheme E. The returns are as below.

# The best performing NPS Pension Fund manager under NPS Tier-1 Scheme E is UTI Retirement Solutions.

NPS Changes -New Rules – December 2018 – Applicable from 1st April 2019

This scheme has generated returns of around 15.15% in the last 5 years. Also, since inception, it is 12.11%.

# The benchmark used for Equity plans is Nifty 50 Index.

# Also, weightage of top 5 holdings is less in case of UTI. It constitutes 24.81% of the overall portfolio.

Kotak Fund holding even the Mutual Funds also like Birla Sunlife Top 100, Birla Sunlife Frontline Equity and SBI Magnum Multiplier.

What are Tier 1 and Tier 2 NPS accounts? What is the difference?

Seems strange to me as how they managing the expenses. Because there will be double expenses like Kotak expenses and also the Mutual Fund Expenses.

# The clear winner in this category is UTI followed by SBI.

NPS Returns for 2018 – Best Performing NPS Tier 1 – Scheme C (Corporate) Fund Returns

Now let us concentrate on NPS Returns for 2018 in Tier 1 Scheme C.

The returns are as below.

# The best performing NPS Pension Fund manager under NPS Tier-1 Scheme C is ICICI.

This scheme has generated returns of around 9.79% in the last 5 years.

Nps tier 1 investment options

Also, since inception, it is 10.52%.

# SBI’s AUM is highest here with around 1006.99 Cr followed by HDFC (572.52 Cr) and ICICI (540.47 Cr).

# The clear winner in this category is ICICI followed by SBI.

NPS Returns for 2018 – Best Performing NPS Tier 1 – Scheme G (Govt Securities) Fund Returns

Now let us look for NPS Returns for 2018 in NPS Tier 1 and Scheme G (Govt Securities).

# In this category, the higher and consistent performer is SBI Pension Fund.

# Have you noticed the less returns of all these funds since a year?

The reason for underperformance by all these funds is that RBI paused the interest rate since few months due to higher inflation, higher crude price and for some other reasons. Due to this, the fund performance decreased drastically.

Because these funds holding longer maturity Government bonds which are prone to interest rate movement.

NPS Returns for 2018 – Best Performing NPS Tier 2 – Scheme E Fund Returns

Let us now move to Tier 2 performance of NPS Returns 2018.

# The best performing NPS Pension Fund manager under NPS Tier-1 Scheme E is UTI Retirement Solutions.

This scheme has generated returns of around 15.09% in the last 5 years.

Nps tier 1 investment options

Also, since inception, it is 10.24%.

# The benchmark used for Equity plans is Nifty 50 Index.

# Also, weightage of top 5 holdings is less in case of UTI. It constitutes 27.47% of the overall portfolio. Kotak Fund holding even the Mutual Funds also like Birla Sunlife Top 100, Birla Sunlife Frontline Equity, ICICI Focused Equity and SBI Bluechip Fund.

Nps tier 1 investment options

Seems strange to me as how they managing the expenses. Because there will be double expenses like Kotak expenses and also the Mutual Fund Expenses.

# The clear winner in this category is UTI followed by SBI.

NPS Returns for 2018 – Best Performing NPS Tier 2 – Scheme C (Corporate) Fund Returns

Now let us concentrate on NPS Returns for 2018 in Tier 2 Scheme C.

The returns are as below.

# In this Scheme the winner is ICICI pension fund with 5 years return 9.69% and followed by Reliance Pension Fund.

# The highest AUM is managed by SBI Pension Fund and followed by ICICI Pension Fund.

NPS Returns for 2018 – Best Performing NPS Tier 2 – Scheme G (Govt Securities) Fund Returns

Let us not check the NPS Returns for 2018 for Tier 2-Scheme G (Government Securities).

# In this category the winner is SBI Pension Fund.

# Have you noticed the less returns of all these funds since a year?

What is your FQ ?

The reason for underperformance by all these funds is that RBI paused the interest rate since few months due to higher inflation, higher crude price and for some other reasons. Due to this, the fund performance decreased drastically. Because these funds holding longer maturity Government bonds which are prone to interest rate movement.

Who is the best NPS Fund Manager for 2018?

In above charts we the NPS Returns for 2018.

Now based on those performance returns, who is the best NPS Fund Manager?

NPS Tier-1 or Tier-2 what is better

To identify the best NPS fund manager, I considered last 3 years returns of each scheme. I purposely avoided 5 years returns as two funds not yet completed 5 years.

In below chart, I show you the highest return generated fund manager for each asset class for a different time period of 1 year, 2 years and 3 years. The data looks like below.

Hope this much information is enough for you to judge how your NPS is performing.

Do remember that NPS comes with lock-in, annuity you buy will be taxable and you have to stick to limited fund managers. Never invest in NPS with the sole intention of tax saving.

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