Let's examine the performance of the seven existing pension fund managers in different asset classes, namely Equity, Government Bonds, and Corporate Bonds.
To evaluate which fund manager is best, we have looked at the scheme's rolling returns rather than just the trailing returns. Rolling returns give a much clearer picture of an NPS fund manager's performance.
NPS Fund Performance: Scheme E
These schemes invest predominantly in large-cap stocks, and for the analysis, we looked at the average 5-year rolling returns. That means we calculated returns across all possible 5-year periods between September 2016 and September 2023 and then averaged them.
The top three pension fund managers are HDFC, ICICI, and Kotak. They have delivered 13.4%, 12.79%, and 12.73% average five-year rolling returns, respectively.
However, an important point to note here is that none of the fund managers were able to beat the Nifty 50 index returns. And when we compared them with the Nifty 100, even then, the HDFC Pension Fund was the only one that did better.
Now, while returns are one part of the equation, the other part is volatility. After all, since equities are expected to be volatile, it's worthwhile to see how the various fund managers have fared in terms of controlling volatility. And, to measure volatility, we used a metric called the standard deviation. The higher the standard deviation, the higher the volatility.
The table below shows the standard deviation of 5-year rolling returns of different pension fund managers. As you can see, there is hardly any difference here. So, volatility isn't really a differentiator among NPS fund managers.
| Pension fund manager | Std dev of 5Y rolling returns |
|---|---|
| HDFC | 0.02 |
| ICICI | 0.02 |
| Kotak | 0.02 |
| UTI | 0.02 |
| SBI | 0.02 |
| LIC | 0.02 |
| Birla | 0.01 |
| Nifty 50 TRI | 0.02 |
| Nifty 100 TRI | 0.02 |
| Rolling returns Period Sep 2016-Sep 2023 | |
Let's take a look at the NPS returns of schemes belonging to asset class G, i.e., government bonds now.
NPS Fund Performance: Scheme G
These schemes invest in government bonds. And these bonds tend to be of long durations. So, how do the fund managers fare when we compare their average 5-year rolling returns?
The top three fund managers here are LIC, HDFC, and Aditya Birla. With returns of 8.58%, LIC has done considerably better than its peers.
But we need to see how these fund managers have performed against a benchmark. So, we compared their performance to an index of government bonds. It's called the I-Sec Sovereign Bond Index. It's one of the oldest and most well-known government bond indexes. And all pension fund managers have performed better than the index.
Now, let's move to looking at the performance of the schemes of asset class C.
NPS Fund Performance: Scheme C
These schemes are allowed to invest in corporate papers, rupee bonds, bank fixed deposits, debt mutual fund schemes, debt securities issued by REITs and InVITS, and infrastructure bonds.
As per regulations, the majority of their investments have to be in bonds with at least an AA rating. A small part can be invested in securities rated AA- to A
Now, coming to the returns of these schemes. With returns of 8.29%, 8.15%, and 7.98%, HDFC, Birla, and SBI are the top 3 best performing NPS funds in this asset class.
NPS Fund Performance: Scheme A
This scheme invests in unconventional products like REITs, InvITs, perpetual bonds, and so on. For simplicity, most investors can ignore this asset class and focus only on the remaining three. In any case, the allocation to asset class A is capped at 5%. Plus, if you choose auto allocation, this asset class is not available to you.
Here is the scheme A performance of various Tier I fund managers.
With returns of 9.45%, SBI tops the chart here. HDFC and LIC come next, with 8.79% and 7.93% returns There are no benchmark returns here as this segment is not as standardized as the others.
So, above was the performance of NPS schemes under different asset classes. Now, let's see how you can use this data to select the best nps fund manager for tier 1.
