The National Pension System (NPS) has emerged as a reliable retirement planning tool. It is especially beneficial for retirees who have managed to accumulate a substantial corpus. The systematic withdrawal plan under NPS provides a structured way of receiving payouts.
This ensures financial stability during post-retirement years. The systematic withdrawal plan allows retirees to withdraw a portion of their NPS corpus at regular intervals. This provides a steady income stream.
The plan is particularly appealing to those with a larger corpus. It offers the flexibility to manage funds according to individual financial needs and market conditions. The NPS systematic withdrawal plan offers several benefits.
Retirees can choose the frequency and amount of withdrawals. This ensures a regular flow of income to meet their daily needs. NPS also offers tax benefits under various sections of the Income Tax Act.
This makes it a tax-efficient retirement solution. A portion of the corpus remains invested in market-linked instruments. This offers the potential for growth even after retirement.
Retirees have significant control over their investments. They can adjust withdrawal amounts based on changing financial circumstances. While the NPS systematic withdrawal plan is advantageous, retirees should consider a few things.
As the corpus is partially invested in equities, there is an inherent market risk. There are also restrictions on the maximum amount that can be withdrawn in lump sum. This needs to be planned accordingly.
Retirees should align their withdrawals with their long-term financial goals and life expectancy. This ensures that the corpus lasts throughout their retirement years. For retirees with a substantial retirement corpus, the NPS systematic withdrawal plan offers a balanced approach to managing post-retirement finances.
It combines the advantages of regular income, tax benefits, and potential for market-linked growth. This makes it a suitable option for ensuring financial stability during the golden years of life. The National Pension System (NPS) has not only served as a tax-saving instrument but has also provided significant returns over the past year.
According to data from Value Research, NPS funds managed by 11 different fund managers have delivered up to a 27% return during this period. DSP Pension Fund was the top performer with a return of 26.51%. It had assets under management (AUM) of Rs 431 crore as of November 2024.
NPS systematic withdrawal benefits retirees
UTI Retirement Solutions delivered a return of 22.75% with an AUM of Rs 3,103 crore as of November 30, 2024. ICICI Prudential Pension Fund provided a return of 19.73% and had an AUM of Rs 17,590 crore as of November 2024.
Several funds delivered consistent returns of around 17%. These include Axis Pension Fund at 17.78%, Tata Pension Management at 17.63%, HDFC Pension Fund at 17.12%, and Kotak Pension Fund at 17.07%. Max Life Pension Fund and ABSL Pension Scheme offered returns of 16.49% and 16.31% respectively.
LIC Pension Fund and SBI Pension Fund provided returns of around 14%, at 14.94% and 14.50% respectively. LIC Pension Fund had an AUM of Rs 6,002 crore while SBI Pension Fund managed Rs 19,072 crore as of November 2024. The returns offered by these funds are indicative of the performance of NPS schemes.
They can serve as an insightful guide for new investors looking to diversify their portfolio while saving on taxes. The National Pension Scheme (NPS) Fund Screener for January 2025 aims to shortlist consistently performing NPS schemes. This tool helps investors identify NPS schemes that outperform their category benchmarks/indices.
It looks for adequate downside protection (better performance when the index is down) and upside performance (better performance when the index is up). The benchmarks used for non-equity schemes are only notional. They may not accurately represent the asset class’s performance.
User discretion is advised. The screener evaluates funds based on three primary metrics. Rolling Return Outperformance Consistency measures how consistently a fund’s returns exceed benchmark returns over various periods such as 1, 2, 3, 4, and 5 years.
Upside Performance Consistency assesses how often a fund outperforms the benchmark during periods when the benchmark increased. Downside Performance Consistency measures how often a fund performs better than the benchmark in declining markets. The screener file includes columns for scheme category, benchmark, NPS scheme name, the number of returns for various periods, and performance consistency metrics.
Investors can filter funds based on criteria such as return outperformance consistency (>=60%) or downside protection consistency (>=60%). For example, ICICI Prudential Pension Fund Scheme E – Tier I had a 1-year trailing benchmark return of 22.704% and a fund return of 35.089%. The excess return was 12.385%, which is favorable.
The index standard deviation was 3.732% while the scheme standard deviation was 3.592%. The excess risk was -0.140%, which is also favorable. Over the last year, the NPS scheme significantly outperformed the benchmark with lower volatility.
When screening funds, it is recommended to set rolling return outperformance consistency above 60% or 70% for 3- and 5-year periods. Investors should also look for downside protection consistency above 60% or 70% over 3- and 5-year periods. The National Pension Scheme Fund Screener for January 2025 is a valuable tool for investors seeking NPS schemes with higher returns and lower risks.
It enables users to make informed decisions based on consistent performance metrics. Trailing returns offer a limited snapshot, so the screener provides a more comprehensive analysis by considering consistency over multiple periods.
