NEW DELHI: The New Pension Scheme for private citizens has generated an average return of 12% in the first year of its operations, outperforming most other long-term saving schemes such as the Employees’ Provident Fund and term deposits.
“We’re looking forward to attracting more companies through our performance. Higher returns may lead to more people taking up our scheme,” said an official of the interim pension regulator PFRDA, which administers the scheme.
But independent analysts said the scheme needs to deliver consistently for a long period for it to become a preferred long-term investment. The year-old scheme for unorganised workers has a corpus of just Rs 10 crore with 6,000 subscribers as compared with the Employees Provident Fund (EPF) which has over 4.5 crore subscribers with a corpus of over Rs 2,62,000 crore as on March 2009.
Part of the reason why NPS has been able to give a high return is because it can invest up to 50% of its corpus in equities. And its fund management fees is as low as 0.0009% a year. In contrast, the employees’ provident fund of the EPF is weighed down by its very conservative investments and higher costs. “It is already clear that EPF will not be able to pay out more than 8.5% interest rate this year as it would face a deficit of around Rs 430 crore even if it increases the interest rate by 25 basis points,” said the official.
NPS corpus is managed by six different fund managers. The equity investments of the scheme have generated a 26% return. Performance of the six fund managers will soon be reviewed the official added. The returns on government securities and corporate bonds, however, have averaged just about 5% and 11%, respectively in the period, largely because of a lack of funds.
“With just Rs 10 crore amongst all six of us, we did not have adequate funds to deploy directly in government securities or corporate bonds. So the returns are not up to expectation,” an official with one of the pension fund managers said.
“These figures are not indicative and one should wait for the average returns over a full cycle,” said Dhirendra Kumar, CEO Value Research Online, a mutual fund and equity research firm. Mr Kumar, however, feels that the NPS will always provide better return than other long-term saving schemes such as EPF.
“The NPS allows as much as 40% allocation in the equity portfolio. On a five-year basis the investment returns in NPS will be much better than EPF,” he said. The new pension scheme corpus is equally divided amongst the six fund managers including SBI Pension Funds, UTI Retirement Solutions, IDFC Pension Funds, ICICI Prudential Pension Funds, Kotak Mahindra Pension Fund and Reliance Capital Pension Fund.
ET
“We’re looking forward to attracting more companies through our performance. Higher returns may lead to more people taking up our scheme,” said an official of the interim pension regulator PFRDA, which administers the scheme.
But independent analysts said the scheme needs to deliver consistently for a long period for it to become a preferred long-term investment. The year-old scheme for unorganised workers has a corpus of just Rs 10 crore with 6,000 subscribers as compared with the Employees Provident Fund (EPF) which has over 4.5 crore subscribers with a corpus of over Rs 2,62,000 crore as on March 2009.
Part of the reason why NPS has been able to give a high return is because it can invest up to 50% of its corpus in equities. And its fund management fees is as low as 0.0009% a year. In contrast, the employees’ provident fund of the EPF is weighed down by its very conservative investments and higher costs. “It is already clear that EPF will not be able to pay out more than 8.5% interest rate this year as it would face a deficit of around Rs 430 crore even if it increases the interest rate by 25 basis points,” said the official.
NPS corpus is managed by six different fund managers. The equity investments of the scheme have generated a 26% return. Performance of the six fund managers will soon be reviewed the official added. The returns on government securities and corporate bonds, however, have averaged just about 5% and 11%, respectively in the period, largely because of a lack of funds.
“With just Rs 10 crore amongst all six of us, we did not have adequate funds to deploy directly in government securities or corporate bonds. So the returns are not up to expectation,” an official with one of the pension fund managers said.
“These figures are not indicative and one should wait for the average returns over a full cycle,” said Dhirendra Kumar, CEO Value Research Online, a mutual fund and equity research firm. Mr Kumar, however, feels that the NPS will always provide better return than other long-term saving schemes such as EPF.
“The NPS allows as much as 40% allocation in the equity portfolio. On a five-year basis the investment returns in NPS will be much better than EPF,” he said. The new pension scheme corpus is equally divided amongst the six fund managers including SBI Pension Funds, UTI Retirement Solutions, IDFC Pension Funds, ICICI Prudential Pension Funds, Kotak Mahindra Pension Fund and Reliance Capital Pension Fund.
ET
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