7th Pay Commission: NPS churns out double-digit returns

 ET Bureau | Jul 25, 2016, 12.21 PM IST

The NPS funds for central government employees have earned 11.43% in the past three years, and 10.5% in the past five. 

NEW DELHI: Young government employees rejoicing over the Seventh Pay Commission bonanza have another reason to cheer. The NPS funds for central government employees have earned 11.43% in the past three years, and 10.5% in the past five. In the past six months, their retirement savings have earned more than what the Provident Fund offers in a full year. 

Other NPS funds have also churned out double-digit returns for investors. The bond rally that began in February last year has seen long-term bond yields decline by almost 175 basis points. 

With their portfolios lined with long-term bonds, the government bond funds of the NPS have shot up, while equity funds have benefited from the stock market rally. If we look at the one-year returns, the bond rally has rewarded ultra-safe investors who stayed away from equities. The bond rally is expected to continue because the market expects interest rates to be cut by at least 25 basis points in October. However, retirement savings are long-term investments and experts say one should not be swayed by the short term performance. While a pure debt-based approach ap pears safe, it will not be able to beat inflation in the long term. A bal anced approach or a conservative allocation, that takes some exposure to stocks, can yield better results. 

In the long-term (3-5 years), balanced investors who divided the corpus across the three categories or aggressive investors who put the maximum 50% in equities have been amply rewarded.