Retirement planning has gained significant importance in India, with increasing life expectancy and rising inflation. This has led to the growing popularity of market-linked retirement-focused instruments like the National Pension System (NPS). A key aspect drawing investors to NPS is the potential for wealth creation, much like traditional avenues such as mutual funds. This raises the question: How do NPS equity funds stack up against leading mutual fund categories regarding returns delivery over short—and long-term horizons?
This post analyses the performance of
NPS pension plans versus large-cap mutual funds over 1, 3, and 5-year periods ending March 2025.
NPS Equity Fund Performance
As of March 07, 2025, NPS equity funds (Scheme E) have showcased strong performance across short—and long-term horizons. Over a one-year period, seven out of 11 pension fund managers beat the Nifty 200 TRI benchmark returns of 1%, with DSP Pension Fund leading with 13.75% returns.
Over 3 and 5-year periods, all other pension funds surpassed the benchmark, barring SBI Pension Fund and Max Life Pension Fund, which have limited history. UTI Pension Fund delivered the highest 3-year (13.47%) and 5-year (17.38%) returns.
The outperformance underscores the active fund management approach of NPS equity funds, which can allocate up to 75% of their assets to equities based on market outlook. The latest portfolio disclosures show that most funds follow a multi-cap allocation focused on high-growth potential stocks.
Disclaimer: The NPS fund returns mentioned above are based on the data as of March 07, 2025. Past performance is not indicative of future results. Please refer to the latest fund performance details before making any investment decisions.
Large-Cap Mutual Fund Performance
The list of top-performing large-cap mutual funds offers insights into the best options based on returns, assets under management (AUM), and expense ratios. Due to their equity-based nature, these funds are categorised as very high risk.
As of 7th March 2025, the Nippon India Large Cap Fund - Direct Plan - Growth Plan stands out with an AUM of 34,212 crore and a 1-year return of 9.58%, accompanied by an expense ratio of 0.74%. Another strong performer is the ICICI Prudential Bluechip Fund Direct Plan-Growth, with an AUM of 60,177 crore and a 9.02% return but with a slightly higher expense ratio of 0.93%.
The HDFC Large Cap Fund - Direct Plan - Growth Option follows with a 6.92% return and an expense ratio of 1.02%. The Kotak Bluechip Direct-Growth fund has the highest 1-year return in this list at 10.44% and a lower expense ratio of 0.62%. Similarly, Invesco India Largecap Fund Direct Plan Growth boasts a solid 11.09% return but a smaller AUM of 1,229 crore. SBI Bluechip Fund Direct Growth offers a 10.75% return, with an AUM of 46,140 crore and an expense ratio of 0.88%. Other funds like Aditya Birla Sun Life and Mahindra Manulife also show strong performance, maintaining high returns and reasonable expense ratios.
Disclaimer: The Mutual fund’s performance mentioned above is based on the data as of March 07, 2025. Past performance is not indicative of future results. Please refer to the latest fund performance details before making any investment decisions.
Why NPS Scored Over Mutual Funds?
Here are some of the reasons why the National Pension Scheme is offering the best returns:
- Better Long-Term Returns: As discussed above, NPS equity funds have consistently outperformed benchmarks over 3- and 5-year periods, with UTI Pension Fund delivering 13.47% (3 years) and 17.38% (5 years) returns.
- Active Fund Management: NPS allows up to 75% equity allocation based on market outlook, enabling it to tap into high-growth stocks.
- Lower Expense Ratios: NPS funds generally have lower expense ratios compared to large-cap mutual funds, which can range between 0.62% and 1.02%. This reduces the drag on returns over the long term.
- Tax Benefits: NPS offers additional tax-saving advantages under Section 80C, making it an attractive option for retirement planning.
- Stability and Consistency: NPS focuses on long-term growth, making it a more stable investment choice compared to the more volatile nature of equity-based mutual funds.
- Focused on Retirement Goals: NPS is specifically designed for retirement, making it a more strategic option for wealth accumulation over time.
Conclusion
The analysis reveals that NPS equity funds have showcased superior performance compared to large-cap mutual funds across both short and long-term horizons in 2025. Benefiting from higher equity exposure, active management, and low costs, certain NPS funds generated over 5% alpha above the category average returns of large-cap funds. Additional tax incentives also tilt the scales favour retirement-focused investors parking funds in NPS equity schemes rather than large-cap mutual funds.
FAQs
Which NPS equity fund delivered the highest 1-year returns as of March 2025?
As seen on NPS Trust, the DSP Pension Fund equity scheme delivered the highest returns, around 12% to 13.71%, for March 2025. This was significantly higher than the average of other NPS funds and the large-cap mutual fund category.
What were the top 3 NPS equity funds in terms of 3-year returns?
As of 7th March 2025, UTI Pension Fund topped the charts with 13.47% returns over 3 years, followed by Kotak Pension Fund (13.18%) and HDFC Pension Fund (12.13%). You should check the latest data on verified sources of fund managers before taking any investment decision.
Which fund houses offered the best NPS equity scheme over a 5-year horizon?
UTI and Kotak pension funds showcased exemplary performance over five 5-year periods, delivering returns in excess of 17%, as of March 2025. HDFC, ICICI, and LIC pension plans also posted 16-17% returns over the timeframe.
