NPS plans outperformed over 200 mutual funds in the last one year. Should you switch sides?

Around 201 mutual funds have offered a lower return than the average return offered by National Health Service Analysis of ETMutualFunds’ returns showed that there were around 440 investment schemes in the last year. equity mutual funds In the said period, 239 schemes gave more than the average returns offered by NPS schemes. NPS schemes in the last one year have offered an average return of around 35.81%.

Tata Pension Managementan NPS plan, has offered the highest return in the last year of around 41.02%, followed by UTI Pension Fund which yielded a return of 39.37% in said period.

ICICI Prudential Pension Fund Management returned 37.47% in the same time period. SBI Pension Funds offered the lowest return of around 31.91% in the said time period.

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Now the important question is: how have NPS plans performed over the past year?

“When analyzing asset classes and their returns, it is important to note that these are not homogeneous. For example, in the real estate sector, not all properties will outperform the real estate index. Therefore, when evaluating, say, mutual funds, one needs to look at the index or benchmark returns. These benchmarks serve as a standard to measure a fund’s performance relative to the broader market or its specific sector. This provides a more accurate picture of a scheme’s performance,” said Priti Rathi Gupta, Founder, LXME.

He further mentioned that “Moreover, with thousands of mutual fund schemes available in the market, each with its own risk profile and time horizon, it is important to recognise that comparing the returns of NPS schemes with those of mutual funds over a single year may not provide a complete picture for investors to make an informed decision.”

In the recent budget announcement, the Finance Minister increased the tax deduction limit on employers’ contributions to NPS from 10% to 14% of basic salary. This move has provided huge tax benefits under the new tax regime.

Read also | What is the difference between regular and direct mutual funds?

With the increase in tax benefits for NPS schemes, what should investors do? Should they increase their allocation to NPS?

“NPS is one of the investment options for retirement; investors can diversify their investments across different investment options like mutual funds, gold, fixed-income instruments, etc. to manage risk, liquidity and flexibility,” Priti Rathi Gupta recommended.

NPS is a market-linked defined contribution plan that helps you save for your retirement. The plan is simple, voluntary, portable and flexible. It is one of the most efficient ways to boost your retirement income and save taxes. It allows you to plan for a financially secure retirement with systematic savings in a planned manner, according to the NPS Trust website.

NPS focuses on retirement savings, while mutual funds help investors plan for different financial goals. The NPS plan has a finite maturity period of 60 years and withdrawal restrictions. Mutual funds offer much more flexibility and ELSS mutual funds come with a lock-in period of three years. These funds have a minimum lock-in period among various tax-saving options available under Section 80C.

(Disclaimer: The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of The Economic Times)