Aggressive equity investors in the NPS made hay in 2013-14 but the funds for government workers churned out their worst ever performance during the year. The Central government schemes of the NPS gave average SIP returns of 5.37% while State government employees had to be content with 4.96%. These calculations are based on SIP returns on monthly contributions from April 2013 till March 2014.
More than 28 lakh central and state government employees who joined service after 1 January 2004 have to compulsorily invest in the NPS. Their retirement savings account for 93% of the total NPS corpus of roughly Rs 45,000 crore.
On the other hand, private sector NPS investors who put the maximum 50% in equities earned an average 13.7% during 2013-14. Balanced investors who split the corpus equally between stocks, corporate bonds and gilts made 10.64%. But ultra-safe investors who abstained from equities and binged on government bonds earned only 3.2% on average. Private sector workers account for only Rs 2,265 crore, or 5% of the total NPS corpus.
NPS votaries have often argued that stock investments give the scheme a distinct advantage over the 100% debt-based EPF. However, the pension funds managing the savings of government workers tend to shy from stocks. As on 30 November 2013, the Central government scheme of SBI Pension Fund had only 7.15% of its corpus in stocks while the fund managed by UTI Retirement Solutions invested only 7.72% in equities.
As the returns of the funds for the general public show, a higher allocation to stocks would have proved beneficial, because the Nifty rose 18.4% during 2013-14. "Young government workers should ask the Pension Fund Regulatory and Development Authority why they are being forced to invest in schemes that put only 6-7% in equities," says Gautam Bharadwaj, co founder and managing director of Invest India Micro Pension Services.
The disappointing performance of the funds for central and state government workers comes a year after the schemes posted spectacular double-digit returns in 2012-13. The poor show during 2013-14 has dragged down the long-term SIP returns of these funds to below 8%.
Experts say the unexpected downturn in government bonds is to blame for the poor showing by the NPS funds. Bond yields rose sharply in July 2013, resulting in significant marked-to-market losses on the long-term bonds in the portfolios of these funds. The SBI Pension Fund, which has been the worst performer with 4.12% (Central govt) and 3.93% (state govt), also had to contend with poorly chosen bonds that turned NPAs. A senior official of SBI Pension Fund says the NPAs constitute only a minuscule fraction of the total corpus. He contends that the dip in the NAVs is temporary and the funds will do well when interest rates decline. "In any case, we intend to hold the government bonds till maturity so the losses will get recouped," he told Economic Times.
Worst ever performance by NPS funds
Year
|
Central govt workers
|
State govt workers
|
2010-11
|
6.91%
|
7.91%
|
2011-12
|
7.28%
|
8.04%
|
2012-13
|
11.24%
|
11.82%
|
2013-14
|
5.37%
|
4.95%
|
Since launch
|
7.55%
|
7.87%
|
Figures are average SIP returns of the three pension funds that manage the govt workers retirement savings.
Source:-The Economic Times
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