Retirement investment: NPS equity returns slumps to 15.86%, growth of AUM slows to 25.49%; here's why

NPS investment: The latest data from the PFRDA shows that annual returns on funds invested in NPS equity schemes have decreased to 15.86% as of December 27, with equity benchmarks declining by more than 10% since the end of September 2024. This is a significant drop from the near 40% annual return recorded on September 28, 2024, when the equity benchmarks reached their peak. 

The returns decreased to 30% on November 10, followed by a further decline to 26.6% on November 30 and 24.37% on December 14. Both the Sensex and Nifty50 indices have fallen by over 10% from their peak in September 2024, causing concern among investors.

As of December 28, 2024, the growth pace of NPS Assets Under Management (AUM) slowed down to 25.49% year-on-year, reaching Rs 13.69 lakh crore. In comparison, the NPS assets AUM showed a strong growth of 27.34% year-on-year as of December 14, reaching Rs 13.71 lakh crore.

By the end of September, the overall NPS assets had reached RS 13.40 lakh crore, indicating a 32% increase compared to the previous year.

The NPS scheme has delivered competitive returns since its inception. In the government sector, the NPS has yielded an average return of 9.5 percent. In the non-government sector, the equity scheme has provided a return of 13.43%, corporate debt 9.11%, and government securities 8.77 percent.

As of December 28, private sector NPS assets growth had moderated, with a year-on-year increase of 33.33 percent at Rs 2.74 lakh crore. This was slightly lower than the growth of 36.40 percent recorded at Rs 2.77 lakh crore in the previous year (as of December 14). In comparison, the assets stood at Rs 2.70 lakh crore by the end of October, marking a 44.52 percent increase on a year-on-year basis.

The number of NPS subscribers in the non-government sector (private sector) showed significant growth, including the newly launched Vatsalya scheme. According to the latest data from the Pension Fund Regulatory and Development Authority (PFRDA), there was a 22.43% year-on-year rise to 62.71 lakh subscribers.

The private sector has experienced a notable 33% growth in NPS assets, surpassing the 24% year-on-year growth seen in the government sector. Although this growth is based on a higher initial amount, it is still significant.

According to data from PFRDA, NPS assets in the government sector (Centre and State government) reached Rs 10.47 lakh crore by December 28, exceeding the Rs 10.23 lakh crore recorded at the end of September 2024.

The increase in NPS assets in the private sector indicates a growing preference for NPS as a retirement savings option among observers in the pension industry.

NPS Debt funds

The NPS framework provides participants with a selection of four asset classes to choose from:

Asset Class E for Equity and associated instruments
Asset Class C for Corporate debt and related instruments
Asset Class G for Government Bonds and associated instruments
Asset Class A for Alternative Investment Funds including CMBS, MBS, REITs, AIFs, Invlts, and similar investments.

Participants in the NPS have the option to select from 11 pension fund managers and are allowed to change their fund manager once a year. Notably, NPS funds have shown strong performance, with corporate bond (C) schemes delivering 9.4% returns and government bond (G) schemes providing 10.4% returns in 2024.

The NPS operates on a two-tier structure, with the Tier-I Account serving as the primary retirement savings account. Subscribers and/or their employers make regular deposits into this account, which are then invested based on the participant's chosen scheme/fund manager.