The National Pension System (NPS) is a defined- contribution- based pension system launched by Government of India with effect from 1^st January, 2004. Off late but the average NPS Fund for Central Government has generated 10.4% returns while for State Government it is 10.8%. Calculations are based on SIP returns on monthly contributions from inception till December 2014. The average equity fund has generated 14.6%, while the corporate bond fund has given 10.6%. This rise is majorly due to recent rally in bonds.  

Gift of high returns from NPS Fund is basically wrapped with risks. In 2012-13, NPS gave high returns but in following years, it decreased drastically. The SIP returns of the average Central government fund was 5.4% while the average state government fund grew only 4.9% in 2013-14. Though the equity return were high at 18% but as it has small portion in their corpus in stocks, this didn’t help much. As returns of the funds for the general public show, a higher allocation to stocks would have proved beneficial, because the Nifty rose 18.4per cent in 2013-14.

Despite the conservative allocation, NPS funds have given good returns in the first nine months of 2014-15. This is due to the bond rally in 2014. The 10-year benchmark bond yield fell 135 basis points — from 9.1% in April 2014 to around 7.8% by the end of 2014 — pumping adrenaline into the NAVs of funds overweight on government bonds. The average SIP return of the gilt funds in 2014-15 is close to 22%, better than the 20% delivered by the equity funds in the period.

As per now, returns delivered by NPS scheme is comparably high and is hoped that it maintains the same. With this NPS investor can also continue to contribute to the capital market.

 

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