10 Best National Pension Schemes (NPS) in February 2023
National Pension Scheme (NPS) is a retirement benefits scheme launched by the Government of India (GOI) for government employees. This scheme invests in low-risk equity funds, security funds and a few alternative investments and offer high returns. It also allows tax benefits of up to Rs.2 lakh under Section 80C and Section 80CCD (1B). This is one of the best NPS schemes to invest in, if you are looking to build your retirement corpus. Check out the list of 10 best National Pension Schemes to invest in India (2023), before you make a choice. Let’s dive in!
10 Best Performing National Pension Schemes in India (2023)
The following is a list of best-performing NPS schemes in 2023 by their 5-year returns.
| Name of the NPS Scheme | 5-Year Annualised Returns |
| HDFC Pension Management Company Limited Scheme E- Tier II | 11.70% |
| ICICI Prudential Pension Fund Scheme E- Tier II | 11.20% |
| UTI Retirement Solutions Scheme E- Tier II | 10.90% |
| Kotak Pension Fund Scheme E- Tier I | 10.60% |
| SBI Pension Fund Scheme E- Tier II | 10.70% |
| LIC Pension Fund Scheme E- Tier I | 10.60% |
| SBI Pension Fund Scheme A- Tier I | 8.70% |
| LIC Pension Fund Scheme G- Tier II | 9.70% |
| HDFC Pension Management Company Limited Scheme A- Tier I | 8.20% |
| HDFC Pension Fund Scheme C- Tier II | 8.10% |
Performance of the Best National Pension Schemes (NPS)
The following is a detailed overview of the best NPS funds mentioned above:
1. HDFC Pension Management Company Limited Scheme E- Tier II
HDFC Pension Management Company manages this NPS scheme. Under this scheme, you can opt for additional tax deductions of up to ₹50,000 over the limits set by Section 80C. Investors need to make a minimum contribution of ₹2,000 annually. This scheme is fit for tier II investors, who get 2 accounts namely tier 1 and tier 2 accounts. Tier I is the primary account and tier II is optional. Its portfolio is made up of 20 companies, with major exposure to Reliance Industries Ltd.
- NAV: ₹30.95
- AUM: ₹746.42 crore
- 1-year Returns: 3.20%
- 3-year Returns: 16.10%
- 5-years Return: 11.70%
2. ICICI Prudential Pension Fund Scheme E- Tier II
The ICICI Prudential Pension Management Company Limited manages this National Pension Scheme. It belongs to asset class E. Thus, it primarily invests in stocks of 68 companies with the highest exposure in HDFC Bank Ltd. A subscriber needs to pay ₹2,000 annually in this scheme.
- NAV: ₹37.31
- AUM: ₹259.90 crore
- 1-year Returns: 2.80%
- 3-year Returns: 16.30%
- 5-years Return: 11.20%
3. UTI Retirement Solutions Scheme E- Tier II
This National Pension scheme largely invests in equities and equity-related instruments and its portfolio has 63 companies with the most exposure in ICICI Bank Ltd. As an investor, you need to pay at least ₹2,000 annually as a contribution to this National Pension Scheme.
- NAV: ₹38.16
- AUM: ₹71.23 crore
- 1-year Returns: 3.20%
- 3-year Returns: 16.20%
- 5-years Return: 10.90%
4. Kotak Pension Fund Scheme E- Tier I
This scheme was introduced on May 15, 2009, mainly for tier I investors. It invests 95.81% of its assets in equities, 3.54% in debt securities and 0.54% in other instruments. The portfolio of this NPS fund includes 45 companies with the most exposure to HDFC bank Ltd. To earn from this National Pension Scheme, you must make a minimum annual contribution of ₹6,000.
- NAV: ₹44.25
- AUM: ₹1,069.57 crore
- 1-year Returns: 3.30%
- 3-year Returns: 16.50%
- 5-years Return: 10.60%
5. SBI Pension Fund Scheme E- Tier II
This National Pension Scheme invests mostly in equities and is fit for tier I investors. This scheme’s inception date is May 15, 2009, and it belongs to the Scheme E asset class. Like most National Pension Schemes in India, investments in the SBI Pension Fund Scheme E- Tier II do not attract income tax up to a limit. You need to invest a minimum ₹6,000 per year.
- NAV: ₹36.46
- AUM: ₹10,329.34 crore
- 1-year Returns: 2.90%
- 3-year Returns: 15.50%
- 5-years Return: 10.70%
6. LIC Pension Fund Scheme E- Tier I
This National Pension Scheme belongs to the scheme E asset class and is ideal for tier 1 investors. This fund belongs to the first pentile depending on the downside risks, returns and consistency of this scheme’s performance. It has 83 companies under its portfolio and has the highest exposure in Reliance Industries Ltd. Subscribers of this scheme need to pay a minimum of ₹6,000 as an annual contribution.
- NAV: ₹30.50
- AUM: ₹31,374.94 crore
- 1-year Returns: 4.10%
- 3-year Returns: 16.80%
- 5-years Return: 10.60%
7. SBI Pension Fund Scheme A- Tier I
This scheme belongs to the Scheme A asset class and is suitable for Tier-I investors. The SBI Pension Fund Scheme A- Tier It mostly invests in debt securities of 12 companies in the construction sector with its highest exposure in Mindspace Business Parks Ltd. The minimum required annual contribution for SBI Pension Fund Scheme A- Tier I is ₹1,000.
- NAV: ₹16.61
- AUM: ₹47.79 crore
- 1-year Returns: 1.40%
- 3-year Returns: 8.70%
- 5-years Return: 8.70%
8. LIC Pension Fund Scheme G- Tier II
This fund’s inception date is on August 12, 2013, and was launched by LIC Pension Fund Ltd. It belongs to the Scheme G asset class and it’s ideal for tier II accounts. Subscribers of this National Pension Scheme need to contribute a minimum ₹2,000 annually. LIC Pension Fund Scheme G- Tier II invests in 19 entities and has a sovereign-rated portfolio.
- NAV: ₹25.01
- AUM: ₹146.28 crore
- 1-year Returns: 6.40%
- 3-year Returns: 6.10%
- 5-years Return: 9.70%
9. HDFC Pension Management Company Limited Scheme A- Tier I
This pension fund invests primarily in alternate bonds and is fit for tier 1 inventors. This scheme was launched by HDFC Pension Management Company Ltd on October 10, 2016 and belongs to Asset Class A. The portfolio of this National Pension Scheme is mostly debt securities of 12 companies. Its highest exposure is to the Bank of Baroda SR XV 8.15 BD PERPETUAL FVRS10LAC.
- NAV: ₹16.53
- AUM: 132.51 crore
- 1-year Returns: 5.30%
- 3-year Returns: 7.70%
- 5-years Return: 8.20%
10. HDFC Pension Fund Scheme C- Tier II
This National Pension Scheme is perfect for tier II investors as it belongs to the Scheme C asset class. CRISIL rates its portfolio as AAA which makes it a low-risk investment. It invests 93.21% of its assets in the debt securities of 41 companies. Subscribers need to pay an annual amount of a minimum ₹2,000 to start investing in this scheme.
- NAV: ₹22.01
- AUM: ₹343.67 crore
- 1-year Returns: 4.60%
- 3-year Returns: 7.20%
- 5-years Return: 8.10%
How Do National Pension Schemes Work?
The National Pension Fund is a voluntary retirement plan regulated by PFRDA (Pension Fund Regulatory and Development Authority) and the Central Government. This long-term social security program is open for all employees in India, including those in public, private and unorganised sectors.
The best NPS schemes aim to attract those looking to earn a stable income after retirement. These are low-cost pension plans offering tax benefits and optional risk for those who want higher returns. Professional fund managers have to follow various regulations of PFRDA to manage these funds.
Subscribers to NPS need to regularly contribute to their pension accounts over the course of their employment. After retirement, they can withdraw a part of the accumulated funds as a lump sum. The rest goes towards an annuity plan that offers a monthly pension for the rest of your retirement life.
Types of National Pension Scheme Accounts
1. Tier I NPS account
This is the basic and low-risk NPS account that is mandatory for any investor. People are not allowed to withdraw from this account till they are 60 years old. Then, they can withdraw 60% of their investments and utilise the rest for an annuity plan. This account offers tax-free returns at all stages of investment and tax benefits of Rs. 2 lakh. You will need to invest at least Rs. 500 in this account at the time of registration and Rs. 1000 in a financial year to sustain the NPS account. There is no maximum cap on the investment amount for this NPS account.
2. Tier II NPS account
This is a voluntary retirement account that an investor can open if he/she already has a Tier I NPS account. Investors can make withdrawals and contributions from this account at their convenience. This account does not offer any tax benefits, unlike a Tier I account. The minimum investment amount for a Tier II NPS account is Rs. 1000 at the time of opening. Thereafter, investors can make multiple contributions of Rs. 250, with no cap on the maximum contribution. Subscribers can switch between a Tier 1 and a Tier II plan anytime.
How are National Pension Schemes Managed?
Pension fund managers in the government and public sector are responsible for the management of NPS. There are four main asset classes in NPS:
- Equities (E)
- Government Securities (G)
- Corporate Debt (C)
- Alternative Investment Funds (A)
Along with multiple asset classes, these schemes also allow investors to customise their asset allocation with two distinct investment strategies.
| Active Choice | Auto Choice |
| These offer the highest flexibility in choosing the proportion of asset classes in your portfolio. Investors can take a maximum of 75% exposure to equities till they are 50 years old. Another restriction is that they can allocate a maximum of 5% exposure to AIFs. Active choice investments allow you the maximum freedom to choose your asset allocation to reach your financial goals. | This option allows you to automate your asset allocation. There are three different asset allocation models for these funds- aggressive life cycle fund, moderate life cycle fund and conservative life cycle fund. These NPS schemes aim to preserve your wealth as you reach retirement age by minimising your overall portfolio risk. |
Benefits of Investing in National Pension Schemes
- A portion of funds goes towards equities that offer higher potential returns over traditional investments.
- The scheme allows partial withdrawals to address financial needs.
- It is one of the most affordable investment options available.
- It offers the flexibility to change investment patterns and the fund manager.
- Under Section 80C, investors can get tax benefits of up to Rs. 1.5 lakh.
- Allows investors additional tax benefits of Rs. 50,000 u/s 80CCD (1B) over and above those offered u/s 80C.
Who Can Invest in National Pension Schemes?
- Investors looking to start building a retirement corpus early.
- Those with a low-risk appetite.
- Private sector employees looking for regular income after retirement.
- Those who want tax-free income after retirement.
- Anyone looking for income tax deductions under Section 80C and Section 80CCD (1B).
Things to Consider Before Investing in National Pension Schemes
- Risk appetite: NPS has a cap of 50% to 75% exposure to equities, whose returns depend on market performance. This results in a higher potential to earn returns compared to fixed-income instruments but imparts it with higher risk. Investors should evaluate their risk appetite before deciding their asset allocation.
- Financial goals: Your funds stay locked in till retirement. After the age of 60, you can withdraw up to 60% of the funds. Hence, you need to have long-term financial goals to invest in an NPS plan.
Tax Benefits on NPS
A subscriber to a National Pension Scheme in India can enjoy the following tax benefits under Section 80C of the Income Tax Act.
- Under Section 80CCD (1) of the IT Act, individuals self-contributing to an NPS can claim tax deductions of up to ₹1,50,000. This limit applies to all tax deductions under Section 80C.
- According to Section 80CCD (2) employees can claim tax deductions for their employer’s contribution to a corporate NPS. This amounts to 14% for government employees and private company employees can claim up to 10% of their salary.
- Lastly, Section 80CCD (1B) allows employees self-contributing an NPS to claim tax deductions of up to ₹50,000 up and over the Section 80C limit.
Final Word
NPS is a low-cost pension product offering stable income and tax benefits after retirement. Furthermore, they offer a high degree of flexibility to change asset allocation and the fund manager to suit your financial goals. To choose from the best NPS schemes, you may want to check their past performance, your risk appetite and investment goals.
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FAQs
Any Indian citizen between the age of 18 and 60 years can apply for NPS regardless of their employment status. Non-Resident Indians (NRIs) can also join the scheme, but their investment will be closed if their citizenship changes.
You can open an NPS account on the official website of NSDL using your PAN, Aadhaar and mobile number. Alternatively, you can go to any bank or other financial institutions registered as POP-SPs (point of presence service providers) and submit your KYC papers to apply for NPS.
• Asset Class E: Invests 50% of the corpus in equities and equity-related investments.
• Asset Class G: The entire portfolio is comprised of government securities.
• Asset Class C: Invests primarily in corporate bonds and money market instruments of various companies.
• Asset Class A: Consists of alternate investments such as REITs, CMBS, MBS and InvITs.
Permanent Retirement Account Number (PRAN) is a 12-digit number given upon registration for an NPS account. Any investor investing in NPS gets a PRAN card with this number and the investor’s name, father’s name, signature and photograph.
Yes, investors of NPS can choose to extend the maturity date, which is fixed when they are 60 years of age. This is called deferment, and it lets you extend the maturity date for up to 10 years.
Some of the best National Pension schemes in India are:
• UTI Retirement Pension Fund Scheme- State Government
• NPS Trust- A/C SBI Pension Fund Scheme- Atal Pension Yojana
• Kotak Pension Fund Scheme
Although NPS has high liquidity, you cannot partially withdraw funds from here like in PPF. NPS is better only if you are focusing on regular returns after retirement. However, if you have plans to support your children’s wedding and education in the long run, PPF is a better option for fixed returns as its rate is set by the Indian Government.
Anyone between the age group of 18-60 years can invest in NPS schemes. Although an NPS scheme matures at the age of 60, you can extend this period to 70 under certain situations.
Usually, NPS schemes do not guarantee any returns as these funds highly depend on market movements. However, government-backed schemes like Atal Pension Yojana offer guaranteed returns of ₹1000-500 as per an individual’s contribution.
Every NPS has a locking period of 5 years, so in usual cases, you cannot exit before this period. However, if your accumulated corpus is less than or equal to ₹2.5 lakh, you can opt for a premature exit. Else, you can withdraw your funds only after 5 years.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
