Dive into the world of the underappreciated but beneficial NPS Tier-2 account. Ideal for investors in large-cap or debt mutual funds, the Tier-2 account offers similar investment options with a minimal expense ratio of just 0.01%. In this article, we will look at the Best NPS Schemes for NPS Tier 2.
Often confused with the NPS Tier-1 account, the Tier-2 version stands apart for its flexibility, functioning like an open-ended mutual fund with the freedom to invest and withdraw at any time.
Despite its lesser-known status and comparatively smaller AUM, its potential impact on AMCs’ revenues can’t be ignored, making it less advertised.
The performance of the equity NPS Tier-2 funds, just like other investments, is influenced by market trends. So, join us as we discuss in detail the advantages of the NPS Tier-2 account.
Consider reading – What are tier 1 and tier 2 in NPS
What are the Benefits of the NPS Tier 2 Account?
The biggest benefit of NPS Tier 2 account is to be able to invest in funds that are investing like large-cap mutual funds/ debt mutual funds with the lowest expense ratio to pay.
The main benefits of an NPS Tier 2 account are:
- Ability to select a pension fund house while account creation.
- Only pay 0.01% as expense ratio for funds
- can select any type of scheme with any % investment choice
- Ability to invest at any time
- Ability to withdraw at any time
- NO exit load
- See all NPS investments in one place
Who are the Different Fund Managers for NPS Tier 2 Account?
As of July 2023, there are 10 different fund managers in NPS and they are:
- Aditya Birla Sun Life Pension Management Ltd.
- Axis Pension Fund Management Limited
- HDFC Pension Management Co. Ltd.
- ICICI Pru. Pension Fund Mgmt Co. Ltd.
- Kotak Mahindra Pension Fund Ltd.
- LIC Pension Fund Ltd.
- Max Life Pension Fund Management Limited
- SBI Pension Funds Pvt. Ltd
- Tata Pension Management Ltd.
- UTI Retirement Solutions Ltd.
What are the Different Types of Schemes for the NPS Tier 2 Account?
There are 4 types of schemes under NPS Tier 2:
- Asset class E : “High return, High risk” (equity market instruments).
- Asset class G : “Low return, Low risk” fixed income instruments. The best example of this is central government bonds.
- Asset class C : “Medium return for credit risk” bearing fixed income instruments. Examples of these are bonds issued by firms.
- Asset class A : Alternate investments like – Investments in REITs, INVITs, etc.(Currently, Asset class A is not being shown as an option on the NPS website.
What are the Best NPS Schemes for Asset class E funds?
When you open a NPS account for tier 2 you have the choice to choose between different options. Mostly, people allocate a higher part of their NPS allocation to Asset class E as equity gives the most returns over the long term.
This becomes a primary reason to choose the best Asset class E fund for your NPS account.
As per the data from NPS trust for June 2023; below are the performance details of various NPS Tier 2 schemes under the Asset Class E category:
|Pension Fund||Inception Date||AUM|
|Aditya Birla Sun Life Pension Management Ltd.||09-May-17||25.15||11,826||20.8789||23.97%||22.72%||12.47%||NA||NA||12.73%|
|Axis Pension Fund Management Limited||21-Oct-22||3.16||2,364||10.7685||NA||NA||NA||NA||NA||7.68%|
|HDFC Pension Management Co. Ltd.||01-Aug-13||873.89||2,18,819||33.5886||23.95%||24.26%||13.42%||14.14%||NA||12.99%|
|ICICI Pru. Pension Fund Mgmt Co. Ltd.||21-Dec-09||298.12||79,411||41.1804||26.68%||25.48%||13.45%||13.46%||13.86%||11.03%|
|Kotak Mahindra Pension Fund Ltd.||14-Dec-09||89.5||22,350||42.2035||25.29%||24.34%||13.73%||13.40%||13.66%||11.21%|
|LIC Pension Fund Ltd.||12-Aug-13||125.56||61,512||27.6782||24.64%||25.64%||13.21%||12.65%||NA||10.84%|
|Max Life Pension Fund Management Limited||12-Sep-22||0.45||384||11.1386||NA||NA||NA||NA||NA||11.39%|
|SBI Pension Funds Pvt. Ltd||14-Dec-09||422.5||1,91,530||39.6952||24.83%||23.82%||12.57%||12.95%||13.30%||10.71%|
|Tata Pension Management Ltd.||19-Aug-22||4.49||3,628||10.994||NA||NA||NA||NA||NA||9.94%|
|UTI Retirement Solutions Ltd.||14-Dec-09||77.25||23,940||41.4504||24.37%||24.99%||12.88%||13.26%||14.19%||11.06%|
What are the Best NPS Schemes for Asset Class C Funds?
Asset class C funds invest in bonds, with the recent problems with debt funds and concern over the safety of debt funds investors are looking for the safety of debt funds over returns.
From the below data from NPS trust, it appears that most of the debt funds have given similar returns.
|Pension Fund||Inception Date||AUM|
|Aditya Birla Sun Life Pension Management Ltd.||09-May-17||11.74||11,712||15.8612||8.46%||5.96%||8.61%||NA||NA||7.80%|
|Axis Pension Fund Management Limited||21-Oct-22||1.2||2,269||10.4079||NA||NA||NA||NA||NA||4.08%|
|HDFC Pension Management Co. Ltd.||01-Aug-13||369.59||2,13,942||22.7652||8.22%||6.07%||8.71%||8.33%||NA||8.65%|
|ICICI Pru. Pension Fund Mgmt Co. Ltd.||21-Dec-09||160.61||79,013||34.1673||8.35%||6.24%||8.44%||8.13%||8.70%||9.51%|
|Kotak Mahindra Pension Fund Ltd.||14-Dec-09||36.17||22,016||30.8497||7.92%||5.40%||8.03%||7.86%||8.34%||8.67%|
|LIC Pension Fund Ltd.||12-Aug-13||69.15||61,518||22.6837||8.53%||6.80%||8.93%||8.18%||NA||8.64%|
|Max Life Pension Fund Management Limited||12-Sep-22||0.16||365||10.4994||NA||NA||NA||NA||NA||4.99%|
|SBI Pension Funds Pvt. Ltd||14-Dec-09||213.54||1,90,432||33.094||7.88%||5.34%||8.09%||7.82%||8.32%||9.23%|
|Tata Pension Management Ltd.||19-Aug-22||1.58||3,528||10.5889||NA||NA||NA||NA||NA||5.89%|
|UTI Retirement Solutions Ltd.||14-Dec-09||32.59||23,732||31.3545||8.41%||5.51%||8.07%||7.78%||8.29%||8.80%|
What are the Best NPS Schemes for Asset Class G Funds?
Asset class G funds invest in low-risk instruments like government bonds. These funds are like Gilt funds. From the below data from NPS trust, it appears that most of the debt funds have given similar returns.
|Aditya Birla Sun Life Pension Management Ltd.||09-May-17||22.05||11,569||15.2828||9.83%||5.06%||9.01%||NA||NA||7.15%|
|Axis Pension Fund Management Limited||21-Oct-22||1.65||2,257||10.5074||NA||NA||NA||NA||NA||5.07%|
|HDFC Pension Management Co. Ltd.||01-Aug-13||546.81||2,11,935||23.9526||9.68%||4.64%||8.89%||7.98%||NA||9.21%|
|ICICI Pru. Pension Fund Mgmt Co. Ltd.||30-Dec-09||234.65||77,395||30.3831||9.80%||4.88%||8.86%||8.02%||8.28%||8.58%|
|Kotak Mahindra Pension Fund Ltd.||14-Dec-09||61.5||21,709||29.2806||9.71%||4.88%||8.73%||7.87%||8.17%||8.25%|
|LIC Pension Fund Ltd.||12-Aug-13||167.32||62,984||25.9882||10.37%||4.94%||9.82%||9.06%||NA||10.14%|
|Max Life Pension Fund Management Limited||12-Sep-22||0.28||364||10.5473||NA||NA||NA||NA||NA||5.47%|
|SBI Pension Funds Pvt. Ltd||14-Dec-09||413.36||1,90,734||32.4413||9.83%||4.66%||8.75%||7.96%||8.10%||9.07%|
|Tata Pension Management Ltd.||19-Aug-22||3.55||3,533||10.7926||NA||NA||NA||NA||NA||7.93%|
|UTI Retirement Solutions Ltd.||14-Dec-09||59.14||23,510||31.3572||10.42%||4.62%||8.71%||7.79%||7.99%||8.80%|
Consider reading: Best NPS Schemes for Tier 1
FAQs on Best NPS Schemes for Tier 2
What is Tier 2 of NPS?
NPS Tier 2 is an optional savings account for those who already have a Tier 1 account. It offers tax benefits under sections 80C and 10(10D) of the Income Tax Act, 1961 for government employees. The insurer provides all the approved insurance plans. Optimize your NPS investments with NPS Tier 2.
Is NPS Tier 2 a good investment?
Yes, NPS Tier 2 is a good investment option. It is more cost-effective compared to mutual funds, with an expense ratio below 0.09%. In contrast, ‘direct’ mutual funds have an expense ratio ranging from 0.3-1%, while ‘regular’ mutual funds can go as high as 2.3%. With NPS Tier 2, you can save on expenses and potentially earn greater returns.
Is NPS Tier 2 tax-free?
No, NPS Tier II accounts are not tax-free. While there is a tax deduction available for investments in NPS Tier I accounts under Section 80CCD (1B), this benefit does not extend to NPS Tier II accounts. Therefore, investments in NPS Tier II accounts do not qualify for a tax rebate under Section 80C of the Income Tax Act.
Which is better NPS Tier 1 or 2?
NPS Tier 1 and Tier 2 accounts serve different purposes. Tier 1 is ideal for building a retirement fund, while Tier 2 offers more flexibility with deposits and withdrawals. Which one is better depends on your specific needs and financial goals. Consider your long-term savings objectives and desired level of accessibility before making a decision.