Financial security is a goal that everyone aspires towards. While financial strength in the present is important, it is also judicious to plan for the future: specifically, for retirement. No one should skimp on a retirement financial plan. You need to strategize ways to earn a stable income when you no longer want to work. With this in mind, the government of India launched a voluntary retirement investment scheme called the National Pension System (NPS) in 2004 for government employees. It was opened for the general public in 2009.
1. NPS Returns for Tier I & Tier II Accounts
NPS and NPS returns including those from NPS Tier 2 account come under the Pension Fund Regulatory and Development Authority (PFRDA). It is managed by NPS pension fund managers who are responsible for NPS returns. NPS funds allocate investments in 4 different asset classes: equity, corporate bonds, government bonds, and alternative assets. Investors can choose NPS pension fund managers to manage their investment.
The amount of National Pension System returns depends upon the performance of the scheme you invest in. NPS Tier 1 returns and NPS Tier 2 returns are not guarantee. Instead, NPS scheme returns depend on the market performance of the scheme you invest in. Therefore, the earlier you begin investing in NPS, the higher your retirement corpus and pension amounts will be.
NPS Returns for Tier I Accounts
| Asset Classes | 1-year Returns(%)* | 5-year Returns(%)* | 10-year Returns(%)* |
| Equity | 15.33%-18.81% | 13.11%-15.72% | 10.45%-10.86% |
| Corporate Bonds | 12.46%-14.47% | 9.27%-10.15% | 10.05%-10.64% |
| Government Bonds | 12.95%-14.26% | 10.29%-10.88% | 9.57%-10.05% |
| Alternative Assets | 3.98%-16.73% | NA | NA |
NPS Returns for Tier II Accounts
| Asset Classes | 1-year Returns(%)* | 5-year Returns(%)* | 10-year Returns(%)* |
| Equity | 15.19%-17.92% | 13.05%-15.83% | 10.35%-10.58% |
| Corporate Bonds | 12.71%-16.36% | 9.55%-10.17% | 9.86%-10.60% |
| Government Bonds | 12.61%-13.42% | 10.40%-12.00% | 9.59%-10.07% |
2. NPS vs Other Pension Schemes
Apart from NPS, other retirement investment schemes available in the market can also be used to secure your financial plans post-retirement. These investment options are offered by different financial institutions such as banks and insurance companies like the Life Insurance Corporation of India. In comparison to NPS, here are the features of other pension schemes in the market:
| Pension Plan | Age Limit (Years) | Minimum Contribution Per Annum | Tax Benefits | Flexibility |
| Regular Pension Plans | 18-60 | ₹18,000 – ₹24,000 | Premiums up to ₹1.5 lakhs deductible under Sec. 80C | Lock-in period of 15 years; eligible for a loan against the policy |
| Whole Life Unit-Linked Plan | 18-69 | Single pay may start at ₹12,000 | Premiums up to ₹1.5 lakhs deductible under Sec. 80C | Lock-in period of 5 years; partial withdrawal possible |
| Public Provident Fund | Minimum 18; No upper limit. | ₹5,000 | Investment up to ₹1.5 lakhs deductible under Sec. 80C | Lock-in period of 15 years; partial withdrawal allowed after 5 years. |
| NPS | 18-65 | ₹10,000 | Investment Up to ₹2 lakhs eligible for tax deductions | Locked-in until 60; partial withdrawals permitted after 10 years |
3. NPS Return Comparison
HDFC Pension Management Co. Ltd.
| Fund | 1-year Returns(%)* | 3-year Returns(%)* | 5-year Returns(%)* | Returns Inception |
| Tier I Equities | 18.81% | 10.69% | 15.72% | 14.96% |
| Tier I Corporate Bonds | 14.22% | 10.36% | 10.15% | 10.71% |
| Tier I Government Securities | 14.26% | 11.80% | 10.88% | 10.72% |
| Tier I Alternative Assets | 8.78% | 8.90% | NA | 8.63% |
| Tier II Equities | 18.64% | 10.59% | 15.83% | 12.72% |
| Tier II Corporate Bonds | 13.70% | 10.24% | 10.16% | 9.79% |
| Tier II Government Securities | 13.38% | 11.55% | 10.73% | 10.94% |
ICICI Pru. Pension Fund Mgmt Co. Ltd.
| Fund | 1-year Returns(%)* | 3-year Returns(%)* | 5-year Returns(%)* | Returns Inception |
| Tier I Equities | 17.50% | 9.57% | 14.44% | 11.91% |
| Tier I Corporate Bonds | 14.03% | 9.98% | 9.98% | 10.64% |
| Tier I Government Securities | 13.45% | 11.33% | 10.68% | 9.41% |
| Tier I Alternative Assets | 6.25% | 7.55% | NA | 7.37% |
| Tier II Equities | 17.92% | 9.74% | 14.54% | 10.24% |
| Tier II Corporate Bonds | 14.00% | 9.83% | 9.87% | 10.49% |
| Tier II Government Securities | 13.42% | 11.28% | 10.64% | 9.53% |
LIC Pension Fund Ltd.
| Fund | 1-year Returns(%)* | 3-year Returns(%)* | 5-year Returns(%)* | Returns Inception |
| Tier I Equities | 15.33% | 7.64% | 13.11% | 12.05% |
| Tier I Corporate Bonds | 14.47% | 10.05% | 9.81% | 10.54% |
| Tier I Government Securities | 13.79% | 12.70% | 11.86% | 11.78% |
| Tier I Alternative Assets | 9.67% | 9.16% | NA | 8.26% |
| Tier II Equities | 15.19% | 7.54% | 13.05% | 9.47% |
| Tier II Corporate Bonds | 16.36% | 10.59% | 10.17% | 9.88% |
| Tier II Government Securities | 13.27% | 13.37% | 12.00% | 12.07% |
4. How to Calculate NPS Returns
National Pension Scheme returns are market-linked so the returns you receive depend on how the underlying investments perform.
You can use an online NPS calculator and use the NPS average return data to calculate NPS returns. The calculator will predict your NPS corpus and pension upon maturity depending on your monthly contributions, age, and the scheme you decide to invest in. The calculator will also ask you to input your expected rate of NPS return.
For instance, let’s take a 30-year-old investor making a monthly contribution of Rs. 5,000 until 60. Assuming an average NPS rate of return of 10%, their NPS investment at the time of retirement would be:
| Description | Amount (Rs.) |
| Total Principal Contributed | Rs. 18 lakh |
| Interest Earned | Rs. 93.98 lakh |
| Total NPS Balance | Rs. 1.1 crore |
Assuming that, as per the NPS exit rule, the investor withdraws 60% of the corpus and the remainder including NPS scheme returns goes into annuities, their pension will look like this.:
| Description | Amount (Rs.) |
| Lump sum withdrawal | Rs. 66.07 lakh |
| Annuity investment | Rs. 45.91 lakh |
| Monthly pension | Rs. 30,609 |
5. NPS Returns Comparison with PPF
Public Provident Fund or PPF is another government-backed instrument that is often used for retirement planning. While comparing National Pension Scheme returns vs PPF returns, the thing to note is that the NPS return rate is market-linked, and PPF returns, though not market-linked are subject to periodic change. Every quarter, the government of India announces the PPF return rate. To understand how each instrument may help with retirement planning, here is a comparison of the two:
| Feature | NPS | PPF |
| Maturity | After 60; Can be extended until 70 | 15 years |
| Returns | Market-linked | Fixed every quarter by the government |
| Return Rate | 10%-12% | 7.1% |
| Tax Deduction | Up to ₹2,00,000 p.a. under Sections 80C and 80CCD(1B) | Up to ₹1,50,000 p.a. under Section 80C |
| Premature Withdrawal | Allowed | Allowed |
When comparing NPS and PPF for retirement, it may be beneficial to note that NPS is a retirement-specific financial instrument while PPF can be used for any purpose.
6. Frequently Asked Questions (FAQs)
No. NPS returns are linked to the market and depend upon scheme performance.
NPS returns are the amount of interest earned on your NPS contributions. It is a long-term investment scheme.
NPS returns are calculated based on the amount invested, the duration of the investment, and the scheme performance. You can use an NPS calculator to compute returns.
After retirement, both lump sum withdrawal of up to 60% of the corpus and annuity investments are tax-free. Only the monthly pensions received are taxed based on the individual’s applicable income tax slab.
The NPS is a long-term retirement investment scheme. Any Indian citizen looking to secure income post-retirement can invest in this scheme.
NPS returns are market-linked. This means that returns are not guaranteed but depend on market performance and the fund manager. Interest in PPF and EPF is pre-determined by the government and set every quarter.
NPS is a long-term investment product. It should be treated like a SIP. Volatility in the market may lead to negative returns in the short term, but it will not impact long-term investment. A subscriber will not be required to compensate for negative returns.
In case an NPS subscriber dies before retirement, the entire corpus is paid to the legal heir or nominee of the subscriber. There is no requirement to invest in an annuity plan. The corpus is tax-free.
Both NPS and mutual fund returns are linked to the market. The return depends upon the pension fund scheme manager, asset allocation, amount of investment, and duration of investment. However, the cost of investing in NPS is minimal, which can translate into considerable returns in the long term.
NPS returns can be checked through your NPS account. Log in to https://cra-nsdl.com/CRA/, enter your login details, and view your transaction and holding statement.
