NPS Scheme: The National Pension System (NPS) scheme guarantees high returns on investment. However, there are high chances of market volatility where NPS account holders get nervous and have second thoughts. Since equity returns have not been attractive over the years, the equity account in NPS has also been affected during this period. However, NPS subscribers need not worry about this drop-in return. There has been a drastic change in the risk-return profile of NPS. Hence a broad canvas has been provided to the investors for asset allocation.
share market connect
On why NPS returns have fallen in the recent past, Shrikant Nadella, MD & CEO, KFintech, said, “Over the past few years, equity funds have been experiencing negative returns. mutual fund Investments are subject to market risks, NPS investments are experiencing the same. As a result, members of the National Pension System have also become worried. It is observed that various active NPS managers follow a multi-cap strategy by investing in stocks outside Nifty. So whenever the stock market tilts towards large caps, it becomes clear that equity funds are bound to underperform.”
The KFintech expert further said that there is nothing for NPS subscribers to worry and panic. The crash and underperformance of equity schemes is mainly due to the recent large-cap bias of the stock market.
Should you switch to PPF, EPF
“The volatility of NPS is usually compensated by the debt segment of the National Pension System. Yet, it did not succeed in acting as a cushion this time as the debt segment was performing poorly. With such a dire situation, Many investors got attracted towards EPF. and PPF. These Provident Fund The schemes were offering much higher rate of interest than NPS.”
Advising investors to compare apples with apples, SEBI registered tax and investment expert Jitendra Solanki said, “NPS is a mix of equity and debt and is meant for one’s retirement fund accumulation. But, the PPF account may or may not be targeted for retirement fund accumulation as it matures after 15 years from the date of opening the account.”
Similarly, Solanki advised investors not to compare EPF interest rate with NPS returns as EPF is also a 100 per cent debt instrument like PPF and is mandatory. However, one can opt for Voluntary Provident Fund (VPF) to add more monthly contribution to his/her EPF account. He advised investors to have a diversified portfolio and maintain exposure to all three – NPS, PPF and VPF.
Market trends in the last few months
equity fund Shares of National Pension System have underperformed the Nifty. Here is a comprehensive list of market trends for NPS mid-cap and small-cap:
However, long-term investment policies yielded more negative returns. Here is the list of all 3 and 5 year investments:
Fall in NPS returns is temporary
You need to treat NPS in a way systematic investment plan, This is because a lower expense ratio will go a long way in boosting long-term performance. So you should increase allocation in NPS due to poor performance of both debt and equity market,
As you have the privilege of changing your asset allocation twice a year, you can maximize the NPS return rate. Also, you can invest up to 75% in equity and contribute to enhance and balance the rate of return.
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