How has DSP Pension given 11% returns & topped NPS chart?

Summary: Despite being a relatively new entrant, this NPS pension fund has managed to deliver double-digit returns just one-and-a-half years after its launch. What’s led to its success?

Launched only a year and a half ago, the DSP Pension Fund has firmly established itself as a strong contender in the NPS (National Pension System) equity space. Its scheme, the DSP Pension Fund Scheme (Equity), delivered an impressive return of 11.34 per cent over the past year, the highest in its category.

So, what’s behind the fund’s outperformance? We find out.

#1 Value investing at its core

A key driver of DSP Pension Fund’s outperformance is its tightly defined value investing framework. It focuses on investing only in those companies that have low debt, clean governance, consistent cash flows and fair valuations. While this has resulted in a highly concentrated portfolio (of the 200 stocks in the BSE 200 universe, the fund has only invested in 29), this selective approach has paid off for the fund.

As per Rahul Bhagat, CEO of DSP Pension Fund, “We only invest in cash-generating businesses with clean management and minimal debt.” He further added, “We don’t pay if the valuations are high.”

#2 Focus on undervalued pockets

While many pension fund managers chose to invest in high-flying sectors like Defence and Capital Goods, DSP Pension Fund focused on segments it believed were mispriced, such as IT and Banking. “When banking stocks were unloved, we bought top private banks. Today, they form about 8 per cent of our portfolio,” Bhagat noted.

Currently, stocks like Bajaj Holdings and Investments, Kotak Mahindra Bank, HDFC Bank and ITC remain among the fund’s top holdings.

#3 High cash holdings – a strategic move

A crucial yet often overlooked component of DSP Pension Fund’s investment strategy is its use of cash. The fund maintains cash holdings of nearly 9-9.5 per cent, close to the regulatory cap of 10 per cent.

When asked the reason behind the fund’s high cash holdings, Bhagat stressed it’s a conscious choice. “We’re not in a hurry to deploy money just because it’s there. We wait for the right price,” he said.

This reserve gives the fund the agility to act swiftly when valuations correct. Also, it provides a cushion during volatility, reinforcing its priority on capital preservation over chasing short-term gains.

The takeaway

DSP Pension Fund’s standout performance proves that in a market full of noise and momentum, fundamentals still matter. With a straightforward value-driven approach, thoughtful cash deployment and selective yet high-quality stock picks, the fund has carved a niche for itself in the NPS ecosystem.

While its track record is short, the process is sound, and that makes it one to watch.

Also read: NPS has only 8% adoption rate: Pension manager explains why