Returns from New Pension System schemes are hugely volatile

Returns from NPS have varied between 12.52% and 1.82% even for bond schemes, since they are market-determined. This is sure to put off savers. Even a massive dose of financial literacy will not help

An analysis of the performance of pension fund managers in the New Pension System (NPS) shows huge volatility in the returns of various schemes and this could put off many savers.

Over the past three years, returns of the schemes for the unorganised sector have varied from 23.51% to -3.15%. This surprising volatility in the returns of NPS, when the investments are supposed to be straitjacketed, will scare away Indian savers, who simply will not associate volatility with a pension plan. This factor alone will ensure that NPS for the voluntary sector will remain a non-starter.

While it is true that NPS returns are market-determined and therefore bound to be volatile, Indian savers, who largely shun equities and mutual funds, would not want to be part of something like this, for a very long time. This would be a big blow to the scheme at a time when the government is set to adopt a new and improved PFRDA Bill into an Act.

The NPS was launched for all citizens of the country, including workers in the unorganised sector, on a voluntary basis, with effect from 1 May 2009. However, returns for the unorganised sector have been abysmal and extremely volatile. In certain cases the schemes investing in government securities and corporate bonds have delivered negative returns. If this is the case, it would be difficult to enlist voluntary subscription for the pension scheme.

For the period 2009-10 and 2010-11, the returns for unorganised sector workers from six fund managers ranged between 12.52% and 1.82% for government securities, 12.66% and 4.02% for corporate bonds, and 25.94% and 7.95% for equity. For the period January 2011 to June 2011, returns on the schemes of corporate bonds and government securities in Tier I & II have ranged from 1.99% to -0.88%.

Six fund managers (UTI Retirement Solutions Limited, SBI Pension Funds Pvt Ltd, IDFC Pension Fund Management Co Ltd, ICICI Prudential Pension Funds Management Co Ltd, Kotak Mahindra Pension Fund Ltd and Reliance Capital Pension Fund Ltd) managed funds for subscribers since May 2009. Each of the fund managers manage three schemes - Scheme E (Equity), Scheme C (fixed income instruments other than government securities), and Scheme G (government securities).

SBI performed poorly in equity schemes, but did well in fixed income schemes, and some like UTI and IDFC did really well only in equity schemes. The spread between the returns of the fund managers for a particular period and scheme was enormous, going to as much as 8% in certain cases. Since this is the nascent stage, we cannot accurately judge the performance of the fund managers. If returns between different funds remain hugely uneven, savers will be scared off.

In equity schemes, from May 2009 to March 2010, in Tier I of the NPS where no withdrawal is allowed, UTI was the best performer with a return of 26%, whereas SBI was the lowest of the six with an 8% return, a huge difference of 18%. In 2010-11, Kotak and ICICI took the lead with a return of 12% and SBI and UTI provided returns of 8% each. In the first quarter of the current financial year, all the schemes have seen negative returns. The performance was more or less similar for Tier II as well.

In Scheme C, for the period May 2009 to March 2010, SBI, ICICI, IDFC and Kotak, delivered a return of 10%, whereas Reliance and UTI delivered returns of 5% and 4%. In FY2010-11, SBI was the best with 13%, whereas IDFC was the lowest at 6.26%.

SBI's continued its good show in government securities as well, with returns of 10% and 12% for the two periods. Returns in 2009-10 were as low as 2% as was the case for UTI and IDFC.  In 2010-11, UTI provided a return of 13% and IDFC was at 7%.

According to NPS guidelines, savers can put money in any of the following schemes.

Asset class E (equity market instruments) - The investment in this asset class would be subject to a cap of 50%. This asset class will be invested in index funds that replicate the portfolio of either the BSE Sensitive index or the NSE Nifty 50 index. These schemes invest in securities in the same weightage comprising an index.

Asset class G (government securities) - This asset class will be invested in central government bonds and state government bonds.

Asset class C (credit risk bearing fixed income instruments) - This asset class will be invested in the following instruments:

(i) Liquid funds of AMCs regulated by SEBI.

(ii) Fixed deposits of scheduled commercial banks.

(iii) Debt securities with maturity of not less than three years tenure issued by bodies corporate, including scheduled commercial banks and public financial institutions.

(iv) Credit-rated public financial institutions/PSU bonds.

(v) Credit-rated municipal bonds/infrastructure bonds.




5 years ago

Very good analysis of NPS. I would welcome if you mention alternatives of NPS too.


D A Bhatt

In Reply to SANTOSH 5 years ago

If option is offered, it is better to withdraw from nps. My perception is that even in most favourable conditions it can not deliever more than 3% to 4% return to private subscribers at the time of retirement due to modus operandii and Methamatical/ empirical algorithums adopted by PFMs to deside calculating NAVs of CLASS E,C,G. It appears to be a ULIP having lower srevice charges. This is my perception about NPS.


5 years ago

Do Not Put All Eggs In ONE Basket can be a Mantra for investing in NPS.

D A Bhatt

5 years ago

Ptivate subscribers with autochoise life cycle fund are getting negative return in nps from the day of their entry.Some need based imrovements may be incorporate on priority basis, else future is blink.


5 years ago

Govt wanted to impose this hugely volatile Pension Fund upon lower/ middle class investors. Because of these drawbacks, Govt. also avoided distributors and advertisements. This has turned blessings for the small investors, as there was no one to recommend the Pension Fund. and hence no takers.!
I donot understand why SEBI did not object to the sale of this poor quality and highly volatile, risky investment !(even after saving huge expenditure !)

R Nandy

5 years ago

With the 3 asset class options given in nps there should also be a fixed return asset class giving returns equal to EPF.All the 3 asset classes given now are volatile in nature.I don,t see any of them useful for a person who will retire in the near term and doesn't want to get exposed to the vagaries of the market.

Utpal Kumar

5 years ago

They are determined to fail this NPS idea till it is designed in such a way that it earn them good commission.


NPS as it is for very long period , and the funds which are invested today or the funds which will be invested in next 10 years will remain in corpus till perpetuity. I see no reason to mark it market at least in GoI bond , and to some extent in Corporate Bonds as well unless issuer defaults.


5 years ago

NPS has failed,
how can Index funds have such huge difference ranging from 12%-2% & i also have doubts on whether at such low cost pension funds can be managed?
Is long term money ,only left to be forgotten by investor, hoping that fund managers would generate aleast decent returns.....


5 years ago

NPS is long term investment but initial return data are not so encouraging

Rambabu Shastri

5 years ago

NPS was launched at the wrong time. Had it been launched 30 years ago, you would have probably seen record returns (long term returns) and everyone jumping to get into NPS. However, remember, that stocks are now nothing but over-valued paper and the same are sold daily in stock markets. Stock markets are now a casino, supported by government funds. The NPS was launched at a time when money was needed to prop markets.

audhakar kulkarni

5 years ago

One must keep in mind that this is long term investment plan and the volatility is taken care due to long term investment, our observation so far clearly indicates that returns from long term investments having combination of debt & equity are about 12% and as such one need not get disturbed by present trend.


5 years ago

thank you for the valuable informations...

FIIs pulled out Rs8,000 crore from stock, debt market last month: SEBI

Market analysts opine that the heavy selling by FIIs was triggered by the US credit rating downgrade, which led to panic among investors fearful of another recession in the world's largest economy and deepening of the financial crisis in European countries

New Delhi: Foreign funds pulled out nearly Rs8,000 crore, or $1.8 billion, from the Indian stock and debt market in August, the highest monthly withdrawal since October 2008, reports PTI quoting market regulator Securities and Exchange Board of India (SEBI).

Overseas investors purchased equity and debt securities worth a gross amount of Rs69,590 crore, but also sold securities worth Rs77,493 crore during the month-translating into a net outflow worth Rs7,902.50 crore, or $1.76 billion, during the period.

According to data available with SEBI, this was the highest monthly net sales by foreign institutional investors (FIIs) since October 2008, when they were net sellers of equity and debt of Rs13,489 crore.

FIIs turned net sellers in August this year after two consecutive months of net inflows. During the months of June and July, overseas players pumped in net amounts of Rs4,883.30 crore and Rs10,652.90 crore, respectively, into Indian markets.

Market analysts believe the heavy selling by FIIs was triggered by the downgrade of the US credit rating, which led to a panic among investors fearful of another recession in the world's largest economy and deepening of the financial crisis in European countries.

"FIIs are waiting for any trigger in the market... Market is still in the consolidation mode. They are also looking for the Reserve Bank of India's (RBI) review policy on 16th September," CNI Research CMD Kishor Ostwal said.

The heavy selling by FIIs was the main reason for the Bombay Stock Exchange benchmark Sensex losing 1,500 points in August, with investor wealth eroded by Rs5,55,650 crore-the biggest monthly loss since January 2011, when the market had lost a little over Rs7,00,000 crore.

FIIs were bullish on the debt market and made an investment of Rs2,931 crore during the period under review, while pulling out Rs10,831 crore from the equity market, SEBI noted.

So far this year, FIIs have pumped Rs19,531 crore into the stock and bond markets, compared to about Rs1,79,674 crore in the whole of 2010.

The number of FIIs registered with SEBI stood at 1,735 as of August this year.


SC asks police to trace fund source in vote-for-cash scam

While asking police to trace the source of the funds, a SC bench of justices Aftab Alam and RM Lodha refused to monitor the case further, saying the charge-sheet in what is known as the cash-for-vote scam has already been filed in the court

New Delhi: The Supreme Court on Friday asked the Delhi Police to trace the source of money used to allegedly bribe some parliamentarians ahead of a confidence vote in Lok Sabha (lower house of Parliament) in 2008, reports PTI.

While asking police to trace the source of the funds, a bench of justices Aftab Alam and RM Lodha, however, refused to monitor the case further, saying the charge-sheet in what is known as the cash-for-vote scam has already been filed in the court.

"The objective has been achieved. Everything should be left to concerned criminal court which is hearing the case. We were on a minor aspect. Who were involved and in what manner is to be decided by the court (trial court)," the bench said.

Former chief election commissioner JM Lyngdoh on whose plea the apex court had issued a slew of directions in the scam pleaded the matter should not be disposed of and the apex court keep the matter pending.

The court, however, was not convinced with the plea and said he can approach it at any stage when its intervention is required.

The Delhi Police also assured the bench that the probe will be completed within four weeks.

As soon as the court proceedings started, the bench remarked that Delhi Police has not found out the source of money and said the agency must focus on this aspect.

"You (Delhi Police) have not done what we said earlier.

Find out the source of money. You can do it, if you want to do it. You are capable of doing so," the bench said.

During the last hearing, the court had slammed the police for its "half-hearted and hopeless" probe and had asked the police to take the probe to its logical conclusion.

The Delhi Police, thereafter, had intensified its probe and filed the charge-sheet on 24th August in a Delhi court against six persons including Samajwadi Party's former general secretary Amar Singh, BJP leader LK Advani's former aide Sudheendra Kulkarni, two ex-BJP MPs Faggan Singh Kulaste and Mahabir Singh Bhagora along with Amar Singh's former aide Sanjeev Saxena and alleged BJP activist Suhail Hindustani.

While Mr Saxena and Mr Hindustani are in judicial custody, the trial court has issued summons to all the accused to be present before it on 6th September.

The police, in its charge-sheet, has accused Amar Singh and Sudheendra Kulkarni of 'conspiring' and 'masterminding' to bribe MPs to win their votes in the confidence motion after the Left withdrew outside support to government following differences on the Indo-US civil nuclear deal.

The case dates back to 22 July 2008 when some BJP MPs had waved wads of currency notes on the floor of Lok Sabha during the trust vote faced by the UPA-I government, claiming they were given the money to vote in favour of the Manmohan Singh government.


We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)