NPS Returns

The National Pension Scheme (NPS) is a voluntary, long-term retirement savings program offered by the Government of India. NPS is a structured approach to accumulate funds for your post-retirement life. NPS Returns refer to the earnings generated on the contributions made to the NPS account.

NPS invests a portion of your contributions in a mix of stocks, bonds, and other assets. The returns are market-linked and they fluctuate based on the performance of these investments. Strong NPS returns can significantly impact your post-retirement lifestyle. They determine how much money accumulates in your NPS account by the time you retire. A larger corpus translates to a bigger monthly pension, allowing you to maintain financial security and enjoy your retirement years to the fullest.

Features & Benefits of National Pension Scheme

The National Pension Scheme was launched in 2004 and is designed to enable systematic savings during an individual's working life. The NPS aims to provide a regular income stream to subscribers after retirement.

The table below presents the features and benefits of the National Pension Scheme.

Feature Benefits
Account Types Tier I (Mandatory) & Tier II (Optional)
Eligibility All Indian Citizens (except Armed Forces)
Account Portability Seamless portability across jobs, sectors, and locations
Investment Choice Choice of asset allocation among Equity, Government Bonds, Corporate Debt
Tax Benefits Up to ₹1.5 lakh deduction under Section 80C and additional deduction of ₹50,000 under Section 80CCD(1)

Read More

Read Less

Are you looking for a personal loan?

Types of NPS Accounts

NPS provides retirement income security through safe and regulated market-based returns over the long term. Before you open an NPS account, it is crucial to understand the different types of NPS accounts available to suit your specific needs. The table below shows the types of NPS accounts.

Here are the few things you need to meet to be eligible to open a National Pension Scheme (NPS) account in India.

Type of NPS Account Description Minimum Initial Contribution
Tier I Mandatory retirement account with tax benefits and restricted withdrawals. ₹500
Tier II Voluntary saving account with flexible withdrawals but no tax benefits on contributions. ₹1,000

NPS Tier I account

  • Tier I account is the mandatory retirement account where regular contributions made by the subscriber and/or their employer are credited and invested as per the scheme/fund manager chosen by you.
  • Tier I account is ideal for retirement planning with tax benefits. Withdrawals from this account are restricted and conditional.
  • Tier I accounts offer tax benefits on contributions made under Section 80CCD(1) of the Income Tax Act, 1961.

NPS Tier II account

  • A tier II account is a voluntary savings account associated with your PRAN (Permanent Retirement Account Number).
  • You can withdraw from your Tier II account at any point in time.
  • Tier II NPS Account can be opened with an initial minimum contribution of Rs. 1,000. Tier II NPS accounts do not offer tax benefits on contributions made.

Types of NPS Investments & Returns

There are four main investment options within NPS. These investment types help you to choose an asset allocation based on your risk tolerance and retirement timeline. Also, these options are managed by the Pension Fund Managers (PFMs) you select.

  • Equity (E): These funds invest a majority of your contributions (up to 75%) in stocks and equity-based instruments. Equity offers the potential for high returns over the long term but also carries the highest risk of volatility.
  • Corporate Debt (C): These funds invest in corporate bonds issued by companies. Corporate debt offers lower risk than equity but also tends to generate lower returns.
  • Government Bonds (G): These funds invest in government bonds issued by the Indian government. Government bonds are considered the safest option within NPS but also offer the lowest potential returns.
  • Alternative Investment Funds (A): These funds invest in a variety of alternative assets like infrastructure projects, real estate investment trusts (REITs), and private equity. Alternative assets can potentially offer higher returns than traditional asset classes but also carry increased complexity and risk.

Asset Allocation

NPS offers two options for choosing your asset allocation.

  • Auto Choice: This is the default option where the PFM automatically assigns your contributions based on your age. Younger investors typically have a higher equity allocation to benefit from potential growth, while the equity allocation gradually reduces as you approach retirement.
  • Active Choice: This option allows you more control over your investments. You can choose the asset allocation percentage for each category (E, C, G, and A) within the limits set by the PFM.

Not sure of your credit score? Check it out for free now!

Check Your Credit Score for Free

Also get a Free Credit Report

Returns on NPS Investments

As NPS investments are market-linked, returns are not guaranteed and will fluctuate based on the performance of the underlying assets.

  • Asset Allocation: The proportion of your investment in each asset class (Equity, Corporate Debt, Government Bonds, Alternative Assets) significantly impacts your returns. Equity offers the potential for higher returns but also carries more risk. Conversely, Government Bonds offer lower risk but also lower returns.
  • PFM Performance: The Pension Fund Manager you choose plays a role. Different PFMs may have varying investment strategies that can affect returns.

Historical NPS Returns

According to the National Pension System Trust website, NPS Tier I investment schemes have delivered returns ranging from 16.46% to 18.19% as of June 14, 2024 [National Pension System Trust, returns under NPS). It's important to remember that these are short-term snapshots and long-term returns may vary.

Calculation of NPS Returns

You can use an online NPS calculator to calculate your NPS returns.

Online NPS calculators allow you to estimate your potential future corpus based on your contributions, age, and chosen investment option. These calculators project future returns based on historical data and assumptions, but actual returns may differ.

People Who Can Consider Investing In NPS

NPS is a good fit for salaried and self-employed individuals. It was initially designed for government employees but has been extended to most Indian citizens. It offers flexibility and security for long-term wealth creation and retirement planning.

  • Individuals Seeking Long-Term Retirement Planning: NPS is designed for retirement savings, encouraging regular contributions over a long period. If you're young and have a long time until retirement, NPS allows you to benefit from compounding interest.
  • Those Who Lack a Formal Pension Plan: Especially for those in the private sector or self-employed, NPS offers a structured way to build a retirement corpus.
  • Tax Benefits Seekers: NPS offers tax benefits under Section 80CCD(1B) for contributions up to Rs. 50,000 and under Section 80CCD(2) for employer contributions (up to 10% of basic salary).
  • People with Disciplined Saving Habits: NPS builds a disciplined approach to saving as contributions are locked until retirement (with some exceptions).

Do you need an instant loan?

Tax Benefits of NPS Returns

The tax benefit of NPS lies in reducing your taxable income at the time of contribution. You can claim tax deductions for the amount you contribute to your NPS account under two sections of the Income Tax Act:

  • Section 80CCD(1): This allows a deduction for contributions up to 10% of your salary (Basic + DA) for both salaried and self-employed individuals. This deduction is capped at Rs. 1.5 lakh within the overall limit of Section 80CCE.
  • Section 80CCD(1B): This offers an additional deduction of up to Rs. 50,000 for voluntary contributions made to your Tier I NPS account. This deduction is available over and above the Rs. 1.5 lakh limit under Section 80CCE.

Maturity: At maturity (after 60 years of age), you are allowed to withdraw up to 60% of the corpus tax-free. The remaining 40% needs to be used to purchase an annuity (pension product) and the income received from this annuity will be taxable as per your income tax slab.

Steps to Open National Pension Scheme Account

Opening a National Pension System (NPS) account can be completed online or through a Point of Presence (POP) service provider.

Open NPS Account Online

  • Step 1: There are multiple CRAs like NSDL eNPS and KRA. You can choose any CRA to register.
  • Step 2: Visit the eNPS portal of your chosen CRA.
  • Step 3: The portal will guide you through the online registration process. This will involve filling in your details, uploading scanned documents, choosing an investment scheme, and making the initial contribution.
  • Step 4: You can use Aadhaar or DigiLocker for faster registration.

Open NPS Account Through PoP-SP

  • Step 1: You can find a list of PoP-SPs on the NPS Trust website or you can visit your preferred bank's website and check if they offer NPS account opening services.
  • Step 2: Visit the PoP-SP branch or online portal.
  • Step 3: You can collect the PRAN application form from the PoP-SP branch you visit. The form might also be available for download on the PoP-SP's website.
  • Step 4: Ensure you have the required Know Your Customer (KYC) documents like PAN card, address proof, and photographs.
  • Step 5: Submit the duly filled PRAN application form along with the KYC documents to the PoP-SP representative.
  • Step 6: You will likely be required to make your initial contribution (minimum Rs. 500) at the time of application.
  • Step 7: Once your application is processed, the National Securities Depository Limited Central Recordkeeping Agency (NSDL CRA) will issue your PRAN Card.
  • Step 8: The PRAN Card will be sent to your registered address by post within 10 working days.

Apply For a Personal Loan with Best interest rates

Frequently Asked Questions

NPS returns depend on the fund manager you choose and their investment strategy. Historically, NPS has delivered returns between 8% and 12% annually, which is higher than many other long-term investment options in India.

NPS returns are generally higher than traditional pension plans due to equity investment options. However, NPS also comes with a longer lock-in period and less guaranteed returns.

Almost any Indian resident between the ages of 18 and 60 can invest in NPS. This includes individuals working in the public, private, or unorganized sectors, but excludes those in the armed forces.

Investing in NPS offers two main tax benefits: deductions under Section 80CCD(1) of up to 10% of salary (basic + DA) and an additional deduction of up to ₹50,000 under section 80CCD(1B), both within certain limits. These deductions effectively reduce your taxable income.

You generally cannot withdraw funds from your NPS Tier 1 account before reaching retirement age (60 years old in India). However, there are exceptions for partial withdrawals for specific reasons if you've been invested for at least 3 years.

You choose a Pension Fund Manager (PFM) who invests your contribution in a mix of Equity, Corporate Debt, Government Bonds and Alternative Investment Funds based on your risk appetite. There are multiple PFMs to choose from.

NPS invests in various asset classes, and the overall return depends on the performance of those investments over your contribution period. You can use an NPS calculator to estimate your total corpus based on your contributions and investment choices.

You can only withdraw 20% as a lump sum, and the remaining 80% must be used to purchase an annuity, which is also taxable.

Yes, you can switch between different fund options in NPS. You can change your investment option (Active Choice or Auto Choice) and fund manager up to specified limits per year.

Display of trademarks, trade names, logos, and other subject matters of Intellectual Property displayed on this website belongs to their respective intellectual property owners & is not owned by Bvalue Services Pvt. Ltd. Display of such Intellectual Property and related product information does not imply Bvalue Services Pvt. Ltd company’s partnership with the owner of the Intellectual Property or proprietor of such products.

Please read the Terms & Conditions carefully as deemed & proceed at your own discretion.