Here is a look at how equity and debt categories of NPS schemes have performed over time versus the respective benchmark indices.
Past performance
A three-year rolling return analysis of NPS equity schemes — with at least a 10-year track record – showed average returns of 13.5%. Net asset value (NAV) history from 28 February 2015 to 28 February 2025 was considered, with the first three-year return observed on 28 February 2018.
In this analysis, returns were rolled daily starting from 28 February 2018. There were 1,699 observations, with calculations based on the historical NAV data sourced from npstrust.org.in.
Five NPS schemes were excluded from the analysis because they didn’t have a 10-year NAV history and were launched in the last two to three years.
HDFC Pension Fund had the highest average three-year return at 14.2%. ICICI Prudential Pension Fund, Kotak Mahindra Pension Fund and UTI Pension Fund each offered 13.7%. SBI Pension Fund and LIC Pension Fund had about 13% average returns. For all six schemes, the three-year returns were largely in the 12-14% range.
However, the returns were lower than the benchmark gains. The BSE 200 Total Return Index (TRI) gave a 3-year average rolling return of 14.7% during the period (see: gfx). TRI takes the impact of dividend gains and stock price movements into account.
“The funds showed market cap tilt in favour of large-cap funds, with some allocation to mid-caps,” pointed out Manuj Jain, co-founder of ValueMetrics Technologies, a data analytics FinTech platform.
NPS schemes are required to invest in the top 200 companies by market capitalization, which includes large- and mid-cap stocks. The schemes’ large-cap allocation was 82-95%, similar to that of large-cap mutual funds, which are required to maintain a minimum 80% allocation to large-caps.
In the one-year period, the NPS schemes delivered average returns of 1.3% compared to large-cap funds’ average gain of 0.6%. Over three years, the NPS schemes’ average returns were 12.3%, underperforming large-cap funds’ 14.7%. In the five-year period, the NPS schemes again marginally underperformed with 16.6% returns versus large-cap funds’ 16.8%.
On the debt side, the corporate debt NPS schemes outperformed their benchmark index – Crisil NPS Corporate Bond Index – in the one-year period. However, over the three-year period, the returns were more or less in line with the benchmark index. Over the five-year period, they marginally underperformed the benchmark index.
The NPS schemes investing in government securities marginally underperformed in the one- and three-year periods compared to benchmark index returns of 8.8% and 7.5%, respectively. In the five-year period, these schemes performed in line with the index.
Selection process
“Typically, if the investor is young and still in the wealth-accumulation phase, we recommend maximum permissible equity allocation of 75% to generate higher compounding over their working years,” says Vishal Dhawan, founder of Plan Ahead Wealth Advisors.
NPS recently allowed investors to change equity and debt allocation four times in a financial year.
“This provision allows investors to rebalance their portfolio. For example, if an investor wants to keep the allocation at 70% equity, 20% government debt and 10% corporate debt, and a run-up in equities increases equity allocation, he or she can transfer the excess to other schemes to revert to the target allocations. However, constant and unnecessary switching may not help as a portfolio needs adequate time to start showing performance,” he said.
Investors can also choose different fund managers for each of the three asset classes—equities, corporate debt, and government securities. Thus, an individual can have three different fund managers for each asset class.
Financial advisors recommend opting for fund managers with a longer track record across market cycles.
“It is important to look for consistency. Which fund manager has given consistent returns in the asset classes you wish to have in your portfolio? Someone who doesn’t have any EPF (employee provident fund) can consider 50:50 allocation to corporate and government debt or a higher combined allocation depending upon the individual’s risk appetite. Whereas someone with EPF may consider 75% equity allocation as EPF would already give debt exposure to the retirement portfolio,” explained Dev Ashish, founder of StableInvestor.
However, government securities may be slightly more volatile than corporate debt, especially during interest-rate cycles. Advisors suggest investors check portfolio disclosures for potential credit risks in corporate debt schemes.