Prime NPS Fund Manager Rankings for a Tier I portfolio
Fund manager rankings - Subscribers only!
NPS Fund manager rankings is a researched list of pension fund managers that will help you choose the right fund manager for you. This report is available only to PrimeInvestor subscribers.
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SubscribeHow to select your NPS Fund Manager
The NPS allows you to select one Pension Fund Manager (PFM) each for Equity (E), Corporate Bond (C), and Government Bond (G).
- Decide if you want a single PFM or different for each asset class: If you want to keep things simple, you can go with just the same fund manager for E, C and G. Else, choose the PFM that is best suited for that asset class.
- If you are going with a single PFM for E, C and G: In this case, pick the asset class (E, C or G) that has the biggest share in your NPS portfolio. Now, shortlist the PFMs ranked 1 to 3 for this asset class – your final PFM pick needs to be from one of these only. This is because the asset class to which your allocation is highest needs to have the PFM that’s best at managing it. From this shortlist, prioritize the PFM that scores well in the other two asset classes as well. Use this PFM for E, C, and G.
- If you are choosing a different PFM for each asset class: In this case, check the ranking in E, C, and G separately. Pick a PFM that is ranked within 1 to 3 in that asset class. If your existing PFM is within this top 3 rank, there is no need for you to make any change and you can continue with the same.
How often should you change your NPS Fund Manager?
You can review your fund manager choices in each asset class once a year.
If your current PFM is within the top 3 ranks in the respective asset class, then you can continue with it. There is no need to shift managers. If your PFM is ranked 4 or below in the rankings, then switch to the better manager as you can lose out on returns. Change the PFM for only that asset class where rankings have slipped.
The fund manager performance within a few quarters does not fluctuate widely enough to warrant a frequent review process. Further, whether it is equity, corporate debt or government bonds, all are meant for the long term and fund manager strategies are developed with this perspective. Short-term movements impacting performance, therefore, should not be a factor in deciding fund manager switches.
Finally, given that each PFM has a different investment strategy, frequent fund manager changes will disrupt the way in which your investments will play out. Therefore, even if the NPS allows you to make PFM changes multiple times a year, it is best to keep it to a minimum.
Our approach to NPS fund manager rankings
Equity, corporate bonds, and government bonds each have their own characteristics and each needs to be managed in a different way to deliver performance. Our scoring system tells us which PFM is better able to deliver steady returns in each asset class with smaller drawdowns and lower risks. Each PFM score & ranking is calculated every day.
- Gating criteria: The NPS is a long-term product and each asset class within the NPS goes through cycles. Therefore, we set a minimum track record requirement of at least 3 years for a PFM to be rated and ranked.
- Separating asset classes: A fund manager will perform differently in each asset class. For instance, a PFM (pension fund manager) will do very well in managing duration in gilt securities but find it hard to pick market-beating stocks. Performance in the ‘G’ therefore would be better than the ‘E’. Therefore, we measure PFM performance in equity, corporate debt, and government debt separately. This apart, since the NPS allows you to choose different PFMs for E, C, and G separate rating and ranking will let you choose the PFM that’s best at delivering in that asset class.
- Equity PFM rating criteria: In equity performance, we look at consistency in delivering returns above the Nifty 100 TRI (since equity is primarily only in large-caps), in both short-term and long-term periods. Additionally, we look at return characteristics such as volatility and downside containment.
- Corporate debt & gilt rating criteria: In both corporate debt and gilt, we measure consistency in performance as well, since you will be remaining invested for years on end. We use other risk measures such as loss probabilities, risk-return payoffs and so on.
FAQs
How frequently do you update the NPS Fund Manger rankings?
The scoring for each fund manager is calculated and ranked on a daily basis. Therefore, the ranking that you see is always the current, refreshed ranking.
My fund manager ranking has slipped. Do I need to worry and make a switch?
Each asset class has its own fund manager scoring and ranking. As long as the ranking for your chosen fund manager in E, C, and G is within the top 3 ranks for the respective asset class, it is fine to continue with that PFM. If the ranking has slipped lower in any asset class, then switch to a PFM ranked within the top 3. It is enough that you review your PFM once a year in each asset class.
My fund manager is not ranked. Do I need to worry and make a switch?
We set a minimum track record requirement of at least 3 years for a PFM to be rated and ranked. New PFMs will not have a history long enough for us to judge ability to deliver consistently. If your current PFM is not ranked, but returns are on par with the top-ranked fund managers you can choose to continue with it. Else, switch to one of the top 3 ranked fund managers in the respective asset class.
Your asset allocation shows me a much lower equity allocation than I think I can have. Why?
Two reasons. One, on the equity side, NPS PFMs don’t do a very good job at beating the market consistently. Return potential is much more in equity mutual funds - active and passive. Going excessively in NPS equity is avoidable especially if you have equity allocations outside the NPS, regardless of your risk appetite.
Second, on the debt side, the NPS scores very well because expenses are ultra-low and because the long lock-in allows good compounding of interest accrual and across rate cycles. Utilizing the debt allocation of the NPS to the hilt, instead of following a more traditional asset-allocation approach helps utilize the best the NPS has to offer with tax benefits. Mutual funds serve the equity need better.
Why do you not consider Alternative Investments asset class?
In our view, the alternative investments class is unlikely to provide any return kicker. One, allocations are too low to make a difference. Two, it requires the fund manager to put the effort in product selection; these options are seldom available on tap. Given the ultra-low management fee for NPS, it appears unlikely that the fund managers will put much effort into sifting through alternative assets to pick good ones on a consistent basis.
Can I maintain the same asset allocation throughout my NPS or do I have to use your tool every year?
No, there’s no real need to change your asset allocation every year unless there are significant developments – such as your risk capacity increases, or you find your debt allocation very low, or you’re stepping up your contributions. You need to keep an eye on equity allocations when you turn 50 because you will be nearing retirement.
Why do you not offer a Tier II asset allocation tool?
Asset allocation in Tier II is similar to that of any other time-based portfolio, as it allows withdrawal at any time. The asset allocation therefore will be dependent on your timeframe, your goal, your risk appetite, and existing investments set up to meet that goal.
