Retirement Planning in Focus: NPS Equity Funds Outshine Large-Cap Mutual Funds in 2025
With inflation on the rise and life expectancy growing, retirement planning has emerged as an important aspect of financial planning for Indian investors. Amongst the range of investment products, the National Pension System (NPS) and mutual funds have been widely popular for their long-term wealth creation potential. In 2025, NPS equity schemes seem to have emerged as leaders in providing superior returns over both short and long terms compared to large-cap mutual funds.
Performance Comparison: NPS Equity Funds versus Large-Cap Mutual Funds
A review of one, three, and five-year returns up to March 2025 shows that NPS equity funds (Scheme E) have been in good shape. On March 7, 2025, seven of the eleven pension fund managers beat the Nifty 200 TRI benchmark, which yielded only 1% in a one-year term. The best performer in the one-year space was the DSP Pension Fund, with a return of 13.75%.
For three- and five-year periods, every NPS fund except SBI Pension Fund and Max Life Pension Fund (with limited history) outperformed benchmark returns. UTI Pension Fund was in a class by itself, reporting the highest return of 13.47% over three years and a tremendous five-year return of 17.38%.
These figures depict the active management of the fund in NPS equity schemes, which can invest up to 75% of the portfolio in equities, depending on the market situation. Most of the pension fund portfolios showed a multi-cap approach that was oriented toward high-growth stocks. Please note that the performance data is as of March 7, 2025, and there is no assurance of future performance.
Mutual Fund Returns in 2025
Large-cap funds have also fared well, albeit with comparatively smaller returns when benchmarked against NPS equity funds. Nippon India Large Cap Fund – Direct Plan – Growth, for example, had a return of 9.58% over 1 year based on a supported AUM of Rs. 34,212 crore and an expense ratio of 0.74%. ICICI Prudential Bluechip Fund – Direct Plan – Growth came in close with a return of 9.02% and a marginally higher expense ratio of 0.93%.
- Some of the other performance-worthy funds that stood out from the rest include Kotak Bluechip Direct-Growth, boasting the best 1-year return of 10.44% and a very low expense ratio of 0.62%, and Invesco India Largecap Fund Direct Plan.
- Growth with an 11.09% return, though with a slightly lower AUM of Rs. 1,229 crore. SBI Bluechip Fund Direct Growth also ranked high with a 10.75% return and an AUM of Rs. 46,140 crore. A few more schemes, such as HDFC’s, Aditya Birla Sun Life’s, and Mahindra Manulife’s, also retained competitive returns.
Similar to NPS funds, mutual fund performance figures are also as of March 7, 2025, and should be checked from time to time for making wise investment choices.
Key Reasons Behind NPS Outperformance
A few reasons led to the better performance of NPS equity funds in 2025:
• Improved Long-Term Performance: NPS equity schemes gave higher returns over three and five years, with some providing more than 5% alpha over large-cap mutual funds.
• Greater Equity Allocation: NPS enables the fund managers to invest up to 75% in equities, providing the choice to capitalise on high-growth prospects.
• Reduced Expense Ratios: NPS schemes normally have lower expense ratios compared to mutual funds, with expense ratios between 0.62% and 1.02%, thereby decreasing the cost burden overall.
• Tax Benefits: Investments in NPS offer further tax benefits under Section 80C, hence, they are more appealing for long-term retirement planning.
• Stability and Long-term Focus on Retirement: Focused exclusively on retirement, NPS funds are designed to provide stability, making them a suitable choice for long-term financial needs.
NPS equity funds have decisively shown superior performance than large-cap mutual funds over several time horizons in 2025. Their greater equity exposure, effective management of funds, and lower cost have helped fuel the high returns. When supplemented with tax relief and a retirement-oriented structure, NPS seems to be a very attractive investment option for individuals looking to create long-term financial security.
