Comparing large-cap and debt funds with NPS Tier 2

Did you know the National Pension Scheme - yes, the retirement savings scheme that also backs up as an additional tax-saver - has a Tier 2 option that is very similar to a mutual fund? Hence the reason we'll compare NPS Tier 2 with mutual funds on several parameters to help you make an educated investment decision. But before we compare them with mutual funds, we must inform you that it is only available to subscribers of NPS Tier 1 - the investment that helps you save tax under the old tax regime. Now that we have explained their eligibility rules, let's dig deep and compare NPS Tier 2 with mutual funds. Performance Here are a few things you should know when we compare their performance: NPS Tier 2 has an equity component. It majorly invests in large-cap stocks, so we have matched its performance with large-cap equity funds. NPS Tier 2's corporate bond portion has been pitted with short-duration funds and corporate bond funds. NPS Tier 2's government securities scheme is directly compared with gilt funds and gilt with 10-year constant maturity funds. Based on five-year trailing returns Trailing returns measures an investment's returns between two particular dates. In this case, it is between March 10, 2018, to March 10, 2023. If you look at the 'Returns' table, NPS Tier 2 schemes have outperformed mutual funds by 1 per cent over the last five years. Based on five-year rolling returns Making a decision based on one data point (r

This article was originally published on March 22, 2023.