Best NPS Schemes in 2020 | NPS Tier 2
This post was most recently updated on February 2nd, 2021
Best NPS Schemes in 2020 | NPS Tier 2
Many people while creating NPS account miss to realize the benefits of NPS Tier-2 account. If you are investing large-cap mutual funds or any debt mutual funds then NPS Tier-2 account is a great option for you.
NPS Tier-2 account lets you invest in funds that invest like large-cap mutual funds or debt mutual funds with an expense ration of only 0.01%.
The NPS Tier 2 account is not much famous because people often link the NPS tier 1 account and NPS tier 2 account together and miss to realise that the NPS tier 2 account is like an open-ended mutual fund where people can invest and withdraw money at any time.
This is the reason you will find the NPS tier 2 account AUM is not huge and you will not see fund houses advertising it as if people start actively investing in the NPS tier account then the AMCs will loose out on fees as they could charge a higher rate of expense ratios in their normal mutual funds.
The NPS tier 2 returns vary from fund types and fund houses. The equity NPS Tier 2 funds do well when the stock market performs well and they perform badly when the market goes down.
Consider reading – What is 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. Mai benefits 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 schemes with any % investment choice
- Ability to invest at any time
- Ability to withdraw at any time
- NO exit load
- See all NPS investments at one place
Who are the different Fund managers for NPS Tier 2 account?
As of December 2020, there are 7 different fund managers in NPS Tier 2 and they are:-
- Birla Sun Life Pension Management Ltd.
- HDFC Pension Management Co. Ltd.
- ICICI Pru. Pension Fund Mgmt Co. Ltd.
- Kotak Mahindra Pension Fund Ltd.
- LIC Pension Fund Ltd.
- SBI Pension Funds Pvt. 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:-
- 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 are 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 in 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 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 May 2020; below are the performance details of various NPS Tier 2 schemes under Asset class E category
| Pension Fund | Inception Date | AUM (Rs Crs) | Returns 1 Year | Returns 3 Years | Returns 5 Years | Returns 7 Years | Returns 10 Years | Returns Inception |
| Aditya Birla Sun Life Pension Management Ltd. | 09-May-17 | 10.60 | 15.85% | 8.81% | NA | NA | NA | 10.80% |
| HDFC Pension Management Co. Ltd. | 01-Aug-13 | 238.84 | 15.82% | 9.76% | 13.82% | 12.07% | NA | 11.95% |
| ICICI Pru. Pension Fund Mgmt Co. Ltd. | 21-Dec-09 | 132.71 | 14.74% | 8.83% | 12.38% | 12.21% | 9.59% | 9.67% |
| Kotak Mahindra Pension Fund Ltd. | 14-Dec-09 | 36.66 | 13.47% | 7.76% | 12.32% | 12.11% | 9.88% | 9.97% |
| LIC Pension Fund Ltd. | 12-Aug-13 | 44.54 | 12.33% | 6.45% | 10.58% | 9.30% | NA | 8.59% |
| SBI Pension Funds Pvt. Ltd | 14-Dec-09 | 193.66 | 14.04% | 8.46% | 12.36% | 12.14% | 9.74% | 9.57% |
| UTI Retirement Solutions Ltd. | 14-Dec-09 | 37.19 | 13.75% | 8.51% | 12.40% | 12.68% | 9.75% | 9.83% |
Best performing NPS Tier 2 fund Asset class E funds
Looking at above data HDFC Pension Management Co. Ltd. given the best returns since its inception.
Over 5 year period ICICI Pru. Pension Fund.has given the best returns.
Highest AUM for NPS tier 2 account
Looking at AUM data HDFC Pension Management Co. Ltd has the highest AUM.
Highest subscriber base for NPS tier 2 account
SBI Pension Funds Pvt. Ltd has the highest subscriber base among all the Asset E class funds for NPS tier 2 accounts.
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 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 (Rs Crs) | Returns 1 Year | Returns 3 Years | Returns 5 Years | Returns 7 Years | Returns 10 Years | Returns Inception |
| Aditya Birla Sun Life Pension Management Ltd. | 09-May-17 | 5.80 | 12.66% | 9.64% | NA | NA | NA | 9.54% |
| HDFC Pension Management Co. Ltd. | 01-Aug-13 | 125.06 | 12.60% | 10.12% | 10.20% | 9.87% | NA | 9.86% |
| ICICI Pru. Pension Fund Mgmt Co. Ltd. | 21-Dec-09 | 86.84 | 12.10% | 9.71% | 9.90% | 10.70% | 10.74% | 10.54% |
| Kotak Mahindra Pension Fund Ltd. | 14-Dec-09 | 19.46 | 12.34% | 9.40% | 9.64% | 10.32% | 9.98% | 9.59% |
| LIC Pension Fund Ltd. | 12-Aug-13 | 28.49 | 16.08% | 10.45% | 10.25% | 10.18% | NA | 9.95% |
| SBI Pension Funds Pvt. Ltd | 14-Dec-09 | 120.62 | 12.41% | 9.62% | 9.73% | 10.40% | 9.98% | 10.34% |
| UTI Retirement Solutions Ltd. | 14-Dec-09 | 19.32 | 13.00% | 9.49% | 9.57% | 10.26% | 10.15% | 9.73% |
Best performing NPS tier 2 fund Asset class C funds
Looking at the above data LIC Pension Fund Ltd. has done excellently well in the 1 year and 5 year period.
Returns since inception is best for ICICI Pru. Pension Fund Mgmt Co. Ltd. in the Asset class C funds.
Highest AUM for NPS tier 2 account
Looking at AUM data HDFC Pension Management Co. Ltd has the highest AUM and SBI Pension Funds Pvt. Ltd is close to 2nd.
Highest subscriber base for NPS tier 2 account
SBI Pension Funds Pvt. Ltd has the highest subscriber base among all the Asset E class funds.
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.
| Pension Fund | Inception Date | AUM (Rs Crs) | Returns 1 Year | Returns 3 Years | Returns 5 Years | Returns 7 Years | Returns 10 Years | Returns Inception |
| Aditya Birla Sun Life Pension Management Ltd. | 09-May-17 | 9.28 | 13.87% | 10.84% | NA | NA | NA | 9.01% |
| HDFC Pension Management Co. Ltd. | 01-Aug-13 | 206.79 | 14.70% | 11.20% | 10.60% | 11.37% | NA | 11.05% |
| ICICI Pru. Pension Fund Mgmt Co. Ltd. | 30-Dec-09 | 122.16 | 14.74% | 10.93% | 10.51% | 11.48% | 10.07% | 9.58% |
| Kotak Mahindra Pension Fund Ltd. | 14-Dec-09 | 30.18 | 13.78% | 10.44% | 10.31% | 11.27% | 9.75% | 9.16% |
| LIC Pension Fund Ltd. | 12-Aug-13 | 105.76 | 14.82% | 12.97% | 11.83% | 12.42% | NA | 12.19% |
| SBI Pension Funds Pvt. Ltd | 14-Dec-09 | 207.57 | 14.36% | 10.87% | 10.52% | 11.54% | 10.00% | 10.25% |
| UTI Retirement Solutions Ltd. | 14-Dec-09 | 32.67 | 13.93% | 10.75% | 10.29% | 11.33% | 9.62% | 9.91% |
Best performing NPS tier 2 fund Asset class G funds
Looking at above data LIC Pension Fund Ltd.has done excellently well in the 1 year,3 years, 5 years, and since inception.
Highest AUM for NPS tier 2 account
Looking at AUM data SBI Pension Funds Pvt. Ltdhas the highest AUM
Highest subscriber base for NPS tier 2 account
SBI Pension Funds Pvt. Ltd has the highest subscriber base among all the Asset E class funds.
Tier 2 NPS FAQs
Is it mandatory to have a Tier 2 NPS account?
No. It is not mandatory to have a Tier 2 NPS account.
Is it good to invest in NPS Tier 2 account?
It’s a good choice to invest in NPS tier 2 account but you may want to review the NPS tier 2 fund performance before investing.
What are the benefits of NPS Tier 2 account?
The biggest benefit of NPS Tier 2 account is the expense ration of NPS tier 2 account is lowest as compared with a normal mutual fund. Other benefits include:-
1. Unlike NPS Tier 1 account, NPS Tier 2 accounts are not locked and you can invest and withdraw money from NPS Tier 2 account at any time.
2. NPS Tier 2 account gives flexibility to choose any fund manager, any fund and any allocation prinicple.
Is NPS tier 2 investment better than mutual funds?
NPS investments are similar to mutual funds but they have an advantage over mutual funds in terms of TER(Total expense ratio). NPS Tier 2 MF charge only 0.01% as expense ration where as the normal equity mutual fund expense ratio is around 1%.
But point to note that returns of NPS tier 2 are different than normal mutual funds. You need to be careful while selecting a NPS tier 2 fund and compare the returns before investing.
Is there an upper limit on NPS Tier 2 contribution?
There is no upper limit of NPS Tier 2 contribution
Do you get tax benefits on the NPS tier 2 contribution?
For Govt employees there is a provision to claim tax benefits on NPS Tier 2 contribution but general public there is no tax benefit on NPS tier 2 contribution.
