NPS - Does it provide assured returns or market linked returns?

NPS is a retirement product and hence there are investors who feel that it offers an assured return much like its counterparts PPF and EPF.

Sadly that is not the case.

On the contrary, an investment in NPS is pretty much similar to a mutual fund.

When you open your NPS account, there are various types of fund options that you can choose to invest in.

Option E – Investment in Equity or Shares (max upto 50% of contribution)
Option C – Investment in Fixed Income such as Corporate Debt (upto 100% of contribution)
Option G – Investment in Government Securities (upto 100% of contribution)
Option A (NEW)- Investment in MBFs, REITs, InvITs, AIFs, etc. (max upto 5% of contribution)

You can decide a mix based on your investment preference and asset allocation and subject to the limitations above. For example, you can have 50% (G), 25% (C), 25% (G) as your NPS investment allocation.

If you can’t decide it for yourself, you can choose one of the auto invest options, where your money will be allocated to various options based on your life stage.

Each of the investment options in NPS has a daily NAV or Net Asset Value. You would recall that mutual funds to have an NAV.

When you make an investment in NPS, you are allocated units of the fund based on the NAV on the day of investment. To find out the market value of your investment, multiply the units by the NAV of the funds you have chosen.

You can measure the change in NAV or your investment value over time to know the growth in your investment. Here you can use XIRR as a method to calculate your returns.

To view the past performance and returns for various options of NPS as provided on NPS trust website, click on the below links.

Option E – Tier 1
Option C – Tier 1
Option G – Tier 1

Notice in the performance tables, there are 7 Pension Fund Managers authorised to manage your NPS money. They are:

SBI Pension Fund
LIC Pension Fund
UTI Pension Fund
Reliance Pension Fund
HDFC Pension Fund
Kotak Pension Fund
ICICI Pension Fund

You can choose any of these to manage your NPS investment.

So, coming back to the question of returns, what does NPS do?

As you already know, the govt announces annual interest rates for EPF and PPF accounts. No such announcement is made for NPS investments.

There are no assured returns in NPS. There are also no guarantees of capital protection of your investment.

Returns on NPS investments are market linked including those in investments such as Government Securities or Corporate Bonds.

In fact, the investment returns can vary based on the fund manager you select to manage your investments (the 7 listed above) and the allocation you decide between the above investment options (E, C, G and A).

So pick your investment manager and options after due consideration.

Final verdict: With NPS you get tax benefits, YES, but assured returns, NO!