Scheme G of NPS invests in government bonds and related securities. It is a low-risk investment option. Double-digit returns in the past one year has been luring naive investors to invest in such schemes

HDFC Pension Fund gave 21.77% returns in Tier I Account, in the last one year, followed by ICICI Prudential Pension Fund (20.50%), Aditya Birla Sun Life (20.90%).
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National Pension System (NPS) schemes show stellar performance as the equity and debt schemes by all the pension fund managers gave double-digit returns in the last one year. Both Tier-I and Tier-II accounts have shown mesmerizing returns. As the stock markets soared to new highs, the Scheme E of NPS delivered as high as 22% returns in the last one year, in line with the benchmark returns.
HDFC Pension Fund gave 21.77% returns in Tier I Account, in the last one year, followed by ICICI Prudential Pension Fund (20.50%), Aditya Birla Sun Life (20.90%). LIC Pension Fund generated the lowest return of 17.96% in the Scheme G of Tier I NPS Account.
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When it comes to investment, National Pension Scheme is slowly becoming a popular choice for Indians because of its impressive returns. In fact, Tier-II account of NPS outperformed most fixed-income investments in the recent past. With 11.89% returns, nearly 12%, in the last one year, Scheme G of NPS Tier II has outperformed liquid debt mutual funds and savings bank fixed deposits by a wide margin.
To compare, while liquid funds on an average have delivered around 5% in the last one year, savings bank fixed deposits returns have also come down steeply to around 5%. NPS has outperformed without any doubt. In the last three years, NPS Tier II account has given an annualised return of 9.53% and in the last five years, average returns stood at 10.20%.
As per NPS Trust data, debt schemes of NPS have delivered double-digit returns in the past one year while the returns from most other fixed-income investments remained muted. As per the data shared by NPS Trust, Scheme G has been topping the charts with an average return of 12% in the last year.
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NPS Scheme Preference:
For the uninitiated, in NPS there is Scheme Preference which is the Pension fund schemes option chosen by the subscriber for investing the pension contribution amount. At present, there is only one default scheme for Tier I. The contribution of all the Subscribers is invested in this default scheme.
In the default scheme, the contribution is allocated to three PFMs, viz. SBI Pension Funds Private Limited, UTI Retirement Solutions Limited and LIC Pension Fund Limited in a predefined proportion and each of the PFMs will invest the funds in the proportion of 85% in fixed income instruments and 15% in equity and equity-related instruments.
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However, for Tier II, the subscriber has been given the flexibility to choose anyone out of the available Pension Fund Managers(PFMs) and also the percentage in which the selected PFM will invest the funds. The three asset classes are:
E = Equity
C = Corporate bonds and
G = Government Securities
NPS Scheme G Returns:
Scheme G of NPS invests in government bonds and related securities. It is a low-risk investment option. Double-digit returns in the past one year has been luring naive investors to invest in such schemes without understanding the rationale. TO understand how NPS delivered superior returns, one needs to know that bond yields and prices of the bonds have an indirect relationship. When yields move down, prices of existing debt schemes go up leading to these securities becoming more favourable due to higher interest rates.
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This means that the NAV of the debt scheme goes up when the yields of securities go down and vice versa. This explains the double-digit returns in the Scheme G of NPS in the last one year. As per the data shared, the benchmark 10-year G-Sec yields have gone down from 6.70% to 5.94% which favoured the government scheme portfolio of NPS and so Scheme G of NPS delivered an average return of 12% in the last one year.
Should you expect similar returns in future?
While it is a fact that NPS has offered stellar returns in the past 12 months or so, one must remember that NPS is a market-linked product which means that the returns in NPS schemes will be volatile. Depending upon the situation, the returns could be lower or even higher than those offered currently. However, like any other long term investment, short term volatility should never be the main focus for investors.
When it comes to long-term investments, experts always advise to focus on the goal and to not get carried away by the short-term volatility. It is advised time and again that investors should not blindly move from equity to debt instruments by merely by looking at the superior returns at a certain point. Before making any decision, understand the product well. Don’t invest in NPS solely for returns. The aim of your investment should be to save for your retirement for the long term.
Meanwhile, after seeing a good response from investors with regards to NPS, the central government is reportedly planning to launch another guaranteed return product by the end of this fiscal year. “The regulator will formulate a product this financial year and give it to the board. Maybe in the next six months, you may see that a product is ready, but launch my take time,” PFRDA chief Supratim Bandyopadhyay recently said.
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