• Post last modified:November 18, 2020
  • Reading time:3 mins read

The employees recruited in recent years are covered under New Pension Scheme. If you are covered under NPS you must have come across the following observation by many of your senior colleagues covered under the old pension scheme or also by those covered under NPS as well.

“The money under NPS Scheme is invested in the Stock market and the return is not certain”

The above statement is correct to some extent but not completely. In this article, we shall discuss where the NPS money is being invested with analysis of the portfolio of SBI Pension fund Scheme Corporate – CG Scheme which is opted by many PSUs, CPSEs and Corporate for the investment of NPS fund.

The key points in respect of the investment under NPS are as under:

  • The Employer may provide an option for employees to select the Pension fund Manager (PFM) or may select the fund manager on behalf of them. In most cases, the PFMs are selected by employers. For example in the case of most PSU banks like State Bank of India, Punjab National Bank, etc, the NPS corpus is managed by SBI Pension funds (P) Ltd.
  • The Corpus is invested by pension funds manager in the following Instruments:
    • Equity (E)
    • Corporate debt/bonds (C)
    • Government Bonds (G)
    • Alternate Investment funds (A)
  • As per portfolio details for October 2020 of SBI Pension funds (P) ltd the total corpus under SBI Pension Fund Scheme- Corporate CG is Rs. 31283 Cr (app.). The amount is invested as detailed below:
Sr. NoInstrumentPercentage of Investment
1Central Government Securities39.17%
2Government Guaranteed Bond1.06%
3State Development Loans11.45%
4Corporate Bonds 
 AAA Rated32.13%
 AA+ rated2.11%
 AA rated0.88%
 AA-0.03%
 Lower (Below investment Grade)0.05%
5Equity10.06%
6Accrued Interest & other current assets2.13%
7Mutual Funds Units0.93%

From the table above, it has been observed that the majority of the investment under NPS is in Central government Securities and in high rated (AAA) Corporate bonds where the risk is negligible. The equity investment and equity-related instruments are approximately 11% and are mostly in Large Companies. The major equity investments are in the stocks of Tata Consultancy Limited, Reliance Industries Limited, Kotak Mahindra Bank, Infosys Technologies Limited, ICICI Bank and HDFC bank, etc.

The investment in bonds assures fixed return while equity helps in improving the returns over the long term. The expected long terms returns under NPS are 8% to 10%.

  • The returns of SBI Pension Fund Scheme- Corporate CG over various tenures as of 13.11 2020 is as under:
Period of InvestmentAnnualised Returns
1 year12.20%
2 years13.30%
3 years9.70%
5 years10.10%
  • The following Graph depicts the stability of returns under NPS against Equity Investments:

The above graph shows that the NPS funds offer protection against the volatility in the Stock market due to its investment in bonds.

Conclusion:  The notion that NPS investment is risky as it invests in the stock market is not correct. The NPS corpus is managed by experienced funds managers and predominantly invests in Government and High rated corporate bonds. The Government/Corporate bonds provide stability of returns while the equity investment helps in improving the return. The expected return of 8%-10% over the long term shall result in the accumulation of a large corpus and therefore good pension amount after retirement.

Note: This article is part of a series of articles about the National Pension Scheme. For other related articles, you may visit Moneyway.org.

Sources:

https://www.sbipensionfunds.com/wp-content/uploads/2020/11/WebsiteReport-October-2020.pdf

https://www.moneycontrol.com/nps/nav/sbi-pension-funds-pvt-ltd-scheme-corporate-cg/SM001010

http://www.npstrust.org.in/faq

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