Retirement savings: Hit by market dip, National Pension System's annual returns on equity funds slip to 10.89% by Jan-end

The recent downturn in equity benchmarks has had a significant impact on the annual returns of equity investments in the National Pension System (NPS), which have now decreased to 10.89% as of February 1, based on the latest data from the Pension Fund Regulatory and Development Authority (PFRDA).

The decline in benchmarks by over 10% since late-September has been primarily driven by weak Q2 and Q3 corporate earnings in the midst of a slowing economic growth trend.

For instance, the Nifty 50 index decreased from its peak of 24,347 points on August 12, 2024, to 23,508 points on January 31, 2025. As of February 12, 2025, the index was trading at 23,065 points. Similarly, the BSE Sensex experienced a drop of around 3%, falling from 79,648 points on August 12, 2024, to 77,500 points on January 31, 2025.

Data from the National Stock Exchange (NSE) revealed that the Nifty Small Cap 250 index, often utilised as a benchmark for small-cap funds, saw a decline of approximately 9%. It dropped from 17,392 points on August 12, 2024, to 15,851 points on January 31, 2025.

The significant decrease in NPS returns represents a sharp decline from the almost 40% annual return achieved on September 28, coinciding with the peak of Indian equity indices. Subsequently, the decline began, with returns decreasing to 30% by November 10, 26.6% by November 30, 24.37% by December 14, and further dropping to 15.86% by December 27.

AUM of NPS

The growth rate of NPS assets under management (AUM) has decreased, with a year-on-year increase of 23.33% to reach Rs 13.88 lakh crore. This growth rate is lower than the 25.49% year-on-year increase reported by the end of December at Rs 13.69 lakh crore. The NPS assets AUM showed a strong growth rate of 27.34% on a year-on-year basis 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, showing a 32% increase on a year-on-year basis.

Despite a moderation in average annual equity scheme returns since the end of September, they still outperformed the 9.76% return in the Central government scheme and the 9.88% return in the State government scheme. The average return generated by Pension Funds for Atal Pension Yojana over the past year was 9.96%, while the return since inception was 9.08%.

The NPS, also known as the National Pension System, has become increasingly popular as a retirement-focused investment option. Financial experts emphasize that the NPS offers key features of an ideal retirement savings product, providing diverse investment opportunities with efficient management and manageable risk levels. 

The NPS scheme has consistently delivered competitive returns from the beginning. In the government sector, the average return since inception stands at 9.5 per cent. Meanwhile, in the non-government sector, the equity scheme has yielded a return of 13.07 per cent, corporate debt at 9.11 per cent, and government securities at 8.79 per cent.

Private sector

The growth of NPS assets in the private sector has moderated as of February 1, with a year-on-year increase of 29.90% to Rs 2.78 lakh crore. This is lower than the 33.33% year-on-year growth at Rs 2.74 lakh crore as of December 28, and the 36.40% year-on-year growth at Rs 2.77 lakh crore as of December 14. In comparison, the assets were at Rs 2.70 lakh crore at the end of October, showing a 44.52% increase on a year-on-year basis.

The number of NPS subscribers in the private sector, including the newly-launched Vatsalya scheme, has seen significant growth. The latest data from the PFRDA shows a 22.38% year-on-year rise to 64.28 lakh subscribers.

Investing in NPS

The NPS operates through a two-tier structure, with the Tier-I Account serving as the primary retirement savings vehicle. This account receives regular deposits from subscribers and/or their employers, which are then invested based on the participant's selected scheme or fund manager. To open a Tier-I Account, a minimum deposit of Rs 500 is required, along with an annual contribution of Rs 1,000. The NPS Tier II Account is a supplementary withdrawable account that is accessible only to active Tier I account holders.