The passing of the Pension Bill in the Lok Sabha is good news
for investors in theNational Pension Scheme (NPS). But the news
from the market is not very heartening.NPS funds have churned
out losses in the past year. While the NAVs of the schemes
may be higher than the September 2012 levels, the point-to-point returns
hide the true picture.
Most NPS investors, including the 30 lakh central and state government
employees, who are compulsorily a part of the scheme, are SIP investors
and their returns should be calculated accordingly. We looked at the
SIP returns of NPS funds in the past year and found that most of them were
in the red.
The NPS funds for government employees have, on an average, lost 2.45%
in the past year. However, you can't blame the downturn in the equity market.
Most of the losses are due to the steep 12-15% fall in government bond prices
in the past three months. The NPS funds for government employees are allowed
to invest up to 15% of their corpus in equities, but no fund has hit that ceiling.
The SBI Pension Fund, the worst performing fund for government employees,
had only 6.83% of its corpus in stocks as on 30 June 2013. The UTI Retirement
Solutions had only 7.75% in stocks as on 28 March 2013. Both the schemes had
almost 50% in government bonds, most of them long-term instruments. The
long-term bonds declined steeply in July-August, when the RBI introduced
measures to stabilise the rupee.
It is not clear how much the investors have lost due to the equity exposure or
allocation to bonds over the past year because the investment mix keeps changing.
Besides, not all pension funds have disclosed the portfolios of the schemes they run.
However, the returns of the NPS schemes for the general public offer some clues
on how investments have performed in the last one year. The G class funds,
which invest only in government bonds, have generated very poor returns
(see table). Far from cushioning the portfolio against volatility, the government
bonds have infused greater risk in the portfolios. The gilt funds of only two
Pension Fund, performed better than their equity funds. The SBI Pension Fund's
gilt fund has been the worst performer in the past year.
Long-term returns also hit
You could say that one year is too short a duration for judging a scheme in
which one has invested for the long term, possibly 20-25 years. However,
the downtrend in stocks and bonds has also impacted the long-term
returns of the NPS schemes. Though the historical NAV data for all pension
fund managers is not available, we managed to get it for UTI Retirement Solutions.
The past five year SIP returns of the pension scheme for central government
employees is 6.34%. The 3-year and 4-year returns of the two other pension
fund managers (see graphic) are also far below the 8.67% that the Employee
Provident Fund has offered.
Corporate bonds to the rescue
Corporate bonds have managed to salvage the
returns of the NPS schemes. In the past year,
the returns of C class funds have been flat,
but over the past four years, they have given
more than 8%. The ICICI Prudential Pension Fund's
corporate bond scheme has been the best perfor
ming C class fund, with SIP returns of 8.84% since
its launch in June 2009. However, these bonds
are not considered as safe as government bonds.
The poor returns come at a time when the
economy is floundering. Some experts say the equity
markets can fall further and recovery can take years.
The good part is that bond prices are expected to
recover in the medium term as the rupee stabilises
against the dollar and interest rates subside. NPS investors should rejig their
allocation to equities, corporate bonds and gilts according
Source : http://economictimes.indiatimes.co