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.

Please subscribe to access.


Our approach to fund manager rankings

Equity, corporate bonds, and government bonds each has their own characteristics and each needs to be managed in a different way to deliver performance. When you invest in the NPS, you’re investing in each of these asset classes, but you might have a higher allocation to one than the others. This has two implications:

  • 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’.
  • You can choose only one PFM – and thus, the asset class to which your allocation is highest needs to have the PFM that’s best at managing it.

Therefore, we measure PFM performance in equity, corporate debt, and government debt separately. Then, on top of this performance, we account for your asset allocation to give you the fund manager rankings that are best suited for your NPS contributions.

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.

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.

Our scoring system, therefore, tells us which PFM is better able to deliver steady returns in each asset class with smaller drawdowns and lower risks. We update the rankings on a half-yearly basis.


How do I use the fund manager rankings?

The NPS Fund Manager Rankings ranks fund managers from best to poorest. The top-ranking PFM is the best suited for your particular asset allocation. You choose any of the top 3 PFMs to manage your NPS contributions.

My current pension fund manager is not ranked No 1. Should I change to the top-ranking manager?

If your current PFM is within the top 3 ranks, then you can continue with it. There is no need to shift managers. If your PFM is lower down than this in the rankings, then it’s best to shift out as you can lose out on returns.

How many times a year should I review my fund manager performance?

Reviewing your PFM choice can be done once a year. The performance within a year for NPS fund managers do not fluctuate widely enough to warrant a more frequent review process.

Will you alert me on changes in fund manager rankings?

We update the fund manager rankings every half-year. We do not alert on changes in rankings as it is unique to each investor based on their own asset allocation. To stay with the better-ranking PFMs, reviewing your choices once a year will be sufficient.

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, both because you will be nearing retirement and because the NPS gradually reduces the extent of equity exposure you can take.

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.

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