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NPS Returns: Features and Benefits

Launched by the central government, National Pension Scheme is one of the most popular savings plans in India. Individuals can start their retirement planning by opening an NPS account today. The scheme offers two types of accounts; Tier 1 and Tier 2. The former is the default account, the latter is a voluntary choice of the individual.

Depending on the risk appetite, you may invest in mixed securities for stable returns. One of the most striking benefits of NPS is it also offers tax benefits of up to ₹1.5 lakhs. Although NPS does not encourage premature withdrawal until retirement, you may withdraw partially under special circumstances. 

To invest in NPS, you may choose funds automatically or manually. There are currently 11 pension fund managers in India. However, for government employees, only SBI Pension Fund, LIC Pension Fund, and UTI Retirement Solutions manage funds. Before you start your NPS journey, let's have a quick look at the NPS return and top-performing schemes. 

NPS Return Rates as of July 2019

Check out the table below for NPS returns rates given as of January 2025:

Pension Fund Managers

1-year equity returns (Tier-1)

1-year equity returns (Tier-II)

Aditya Birla Sun Life Pension     

25.02

25.41

Axis Pension  

24.41

24.32

HDFC 

24.15

24.28

ICICI Pru

27.98

28.41

Kotak Mahindra Pension

27.21

27.05

LIC Pension 

24.18

22.62

Max Life Pension

25.91

26.27

SBI Pension 

24.44

24.24

Tata Pension

27.37

27.64

UTI Retirement

25.17

23.80

Source

Comparison of Average Returns for Tier 1 and Tier 2 Assets

The 1-year return on equity investment in Tier-I accounts ranged between 24% and 28%. ICICI Prudential Pension Fund registered the highest return of 28%, followed by Tata Pension Fund at 27.37%. In contrast, HDFC Pension Fund registered the lowest return of 24.15%. Thus, while all the funds fared well, ICICI had the highest growth among Tier-I investors. 

For Tier-II accounts, NPS returns over 1 year varied from 22% to 28%. ICICI Prudential topped the charts once again with a return of 28.41%, and Tata Pension Fund was second with a return of 27.64%. The lowest return was provided by the LIC Pension Fund with 22.62%. Apparently, ICICI did the best again, with the highest returns for investors investing in Tier-II accounts. The performance difference demonstrates the significance of selecting the proper fund manager.

Who Should Consider Investing in NPS?

Except armed forces, anyone (18-70 years old) can invest in the National Pension Scheme. Whether you are from the public, private, or unorganized sector, NPS is open to you. All you have to do is regularly invest until retirement. After retirement, you can enjoy the benefits of a regular pension. You can also withdraw a percentage of the accumulated fund after retirement. 

Now even minors can have an NPS account under NPS Vatsalya. Parents can open an NPS account for their kids. Until kids turn 18 years old, parents need to manage the account. After this, kids can manage their accounts on their own.

Note: Overseas citizens of India (OCI), Hindu Undivided Families (HUFs), and Persons of Indian Origin (PIOs) cannot subscribe to NPS. 

Source

Key Features of the National Pension Scheme

Some of the highlighting features of the national pension scheme are as follows:

  • NPS is a voluntary, government-backed plan aimed at encouraging long-term retirement savings for Indian residents and citizens.

  • Indian citizens, NRIs, and OCIs who are between the ages of 18 and 70 years when joining.

  • Tier I accounts are compulsory for retirement purposes, whereas Tier II is discretionary and permits free withdrawals at any time.

  • Investments up to ₹1.5 lakh under Section 80C and an additional ₹50,000 under Section 80CCD(1B) of the Income Tax Act of 1961 are exempt from tax.

  • Contributions of up to 10% (or 14% in the case of government employees) of salary are exempt from tax under Section 80CCD(2).

  • Investment options are equity, corporate debt, and government securities with different risk and return patterns.

  • Contribution is flexible, with no mandatory amount or frequency, and is thus ideal for all income levels.

  • Partial withdrawal of up to 25% of self-contribution is possible after three years for certain personal expenses.

  • At the time of retirement, 60% of the corpus is tax-free and can be withdrawn, while 40% should be utilized for purchasing an annuity.

  • The scheme is regulated and supervised by the PFRDA to ensure investor protection and transparent operations.

How to Open an NPS Account?

Opening an NPS account is now quite easy and quick. Here are the steps to open an NPS account:

  • Online Method

  • Visit the website of any Central Recordkeeping Agencies (CRA)

  • Enter your details like PAN, email ID, and mobile number 

  • Enter the OTP received on your mobile number to verify 

  • Now follow the instructions given on the screen 

  • Once done, you will receive your PRAN (Permanent Account Number) which can be used to login to the NPS website

  • Offline Method

  • Visit a nearby Point of Presence(PoP)

  • Fill out and submit the application form

  • Submit documents to complete the KYC process

  • Now you need to pay ₹500 for Tier 1 NPS account opening 

  • Within 10 days, you will receive the PRAN kit at your address via post. 

Comparing NPS Returns with Other Retirement Schemes

NPS is one of the several savings schemes in India. The returns offered by NPS are quite competitive in comparison to various other schemes like EPF and PPF. Here is a quick comparison of these schemes with NPS returns:

National Pension Scheme 

Mutual Funds

Fixed Deposits

9-12% returns

10-14%

6-7%

Source

As you may see in the table above, NPS can offer around 9-12% annual returns which is at par with mutual funds and much higher than fixed deposits. Although mutual funds may offer higher returns than NPS, it has higher risks associated and is usually more volatile.

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Disclaimer :

The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.

The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.

Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.

BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.

Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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