Retirement planning is gaining prominence in India due to extended life expectancy and rising inflation rates, prompting a significant shift towards market-linked instruments like the National Pension System (NPS). As of March 2025, NPS equity funds have delivered notable returns over various periods, driven by strategic asset allocation and a focus on high-growth stocks.
Notably, the DSP Pension Fund emerged as a top performer with 13.75% returns over one year, outstripping the Nifty 200 TRI benchmark return of 1%. Similarly, UTI Pension Fund achieved remarkable three-year and five-year returns of 13.47% and 17.38%, respectively.
According to the information available on the NPS Trust website, the DSP Equity Tier I scheme generated a return of 15.06% in the previous year, outperforming other NPS equity schemes, as of March 2025.
Specifically, the SBI NPS equity scheme reported a return of -2.12%, Max Life yielded a return of 0.80%, UTI Pension Fund’s equity scheme delivered a return of 4.63%, and Kotak Pension Fund’s equity scheme achieved a return of 4.64% in the last year. In comparison, Aditya Birla Equity Pension Fund provided a 1.70% return in the same period.
NPS asset allocation
The NPS allows equity allocation of up to 75%, enabling fund managers to harness market opportunities efficiently. This strategic approach has facilitated the NPS funds to consistently outperform benchmarks, with the active management of multi-cap portfolios focused on high-growth potential stocks. Comparatively, large-cap mutual funds such as Nippon India Large Cap Fund have also shown robust performance, achieving a 1-year return of 9.58%. Nonetheless, NPS funds typically benefit from lower expense ratios, ranging from 0.62% to 1.02%, which enhances long-term returns by reducing cost drag.
Tax benefits
Additionally, NPS offers distinct tax-saving benefits under Section 80C, positioning it as an appealing option for individuals focused on retirement planning. The tax incentives, coupled with the fund’s ability to generate substantial alpha over large-cap mutual funds, make NPS an attractive choice for investors aiming for wealth accumulation over time. The strategic, retirement-focused design of NPS funds ensures stability and consistency, contrasting with the more volatile nature of traditional equity-based mutual funds.
NPS investment
In the competitive landscape, NPS equity funds continue to outperform large-cap mutual funds due to their strategic equity exposure and active management. By delivering over 5% alpha above the category average returns of large-cap funds, NPS funds provide investors with a superior option for retirement-focused investment.
As of March 2025, the analysis reveals that NPS schemes have consistently delivered better long-term returns compared to their mutual fund counterparts, thereby enhancing their attractiveness among retirement-focused investors.
Investment Strategies in NPS
Active Choice: Investors have the flexibility to allocate their contributions among Equity (E), Corporate Bonds (C), Government Securities (G), and Alternative Investments (A). While Equity investments are capped at 75% of the total contribution, Corporate Bonds and Government Securities can receive up to 100% allocation. Alternative Investments are limited to 5%.
Auto Choice: This option adjusts asset allocation based on the investor’s age, starting with a higher equity exposure in younger years and gradually shifting towards safer assets like bonds and government securities as retirement nears. Auto Choice is well-suited for individuals who prefer a hands-off approach to investment management and prioritize risk aversion.