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A steady income stream is key to enjoying a stress-free retired life. From meeting everyday expenses to medical costs, your retirement savings are handy when you can’t work for a regular income. The best way to plan early retirement is to start investing in a retirement fund. 


If you’ve given retirement some thought, you must have pondered over the NPS vs. APY question. Both are government-back pension schemes regulated by the PFRDA and offer post-retirement pension taxable under the applicable tax slabs. Both offer tax benefits on contributions. Despite these similarities, there are significant differences between NPS and the Atal Pension Yojana. 


To help you choose a retirement plan that suits your needs and brings you desired returns, we’ve covered the differences between the NPS and APY. But before you go through the Atal Pension Yojana vs. NPS comparison, let’s first gain insight into the two government-backed pension schemes.

Key Difference Between NPS and APY

We've collated them into an easy-to-read table to help you understand the differences between the National Pension Scheme and the Atal Pension Yojana. Here’s a quick overview to help you decide on the NPS vs. APY dilemma:


National Pension System (NPS)

Atal Pension Yojana (APY)

Joining Age

Anyone between the ages of 18-70 can join NPS. 

Anyone between the ages of 18-40 years can join APY. 

Who Can Become A Subscriber

Both resident and non-resident Indians (NRIs) can join. 

Only resident Indians can opt for this pension scheme. Income tax-paying Indian residents are also debarred from the scheme.

Account Types

You can choose between Tier I (default) and Tier II (voluntary) NPS accounts. 

APY offers just one standard account.

Investment Flexibility and Choice

You can choose assets and investment proportions with the Active Choice option. Alternatively, you can pick a lifecycle fund and automate investments with the Auto Choice option.

APY doesn’t give you the flexibility to choose investment options. Funds are managed as per the Government’s specified investment pattern.

Pension Slab

NPS doesn’t have fixed pension slabs since returns are market-linked. 

Fixed pension slabs can be selected varying from  ₹1,000- ₹5,000. 

Contribution Amount

You must contribute a minimum of  ₹1,000/year to a Tier I account. There are no caps on the maximum contribution. 

Contribution depends on the pension slab selected. 

Government Contribution

No government contributions are included as NPS is entirely based on self-made contributions and market-linked returns.

There is some government contribution, subject to certain terms and conditions. 

Account Number

NPS operates on the basis of a Permanent Retirement Account Number (PRAN).

APY does not offer a permanent pension account number. 

Premature Withdrawal Rules

Tier II accounts allow unlimited premature withdrawals. Partial withdrawals under Tier I accounts are subject to the fulfilment of certain terms and conditions. 

No premature withdrawals are permitted before the end of the scheme’s tenure. Withdrawals are permitted only upon the subscriber’s death or critical illness diagnosis. 

Impact of Market Changes

NPS returns are affected by debt and equity market changes. 

APY returns are not market-linked and hence immune from such changes. 

Returns and Payout

The payout depends on your contribution and the performance of your selected assets. 

Payout is fixed and guaranteed by the Government of India. 

Pension Guarantee

NPS doesn’t offer a guaranteed pension amount. 

APY offers a guaranteed pension amount. 

NPS or APY: Which is Better?

Now that we’ve covered the differences between NPS and APY, you must be wondering, ‘NPS vs. Atal Pension Yojana, which is better?’ The answer to this query depends entirely on your risk appetite and pension expectations. 

1. Returns Under the Atal Pension Yojana (APY)

The Atal Pension Yojana offers you predetermined and guaranteed pension earnings to ensure a stable retirement. As mentioned earlier, you have to pick a suitable pension slab ranging from ₹1,000-₹5,000 and make fixed contributions based on your age. Your returns will depend on your contributions. 


Here’s an instance. Say, you’ve opted for a monthly pension of ₹1,000. Depending on your age, your contribution to the scheme will vary as follows: 

Here’s an overview to help you understand APY returns:

Joining Age

No. of Contributing Years

Indicative Contribution/Month

Monthly Pension Amount

Indicative Corpus Paid to Nominee





₹1.7 Lakhs





₹1.7 Lakhs





₹1.7 Lakhs





₹1.7 Lakhs





₹1.7 Lakhs





₹1.7 Lakhs

Also, note that while your ₹1,000 monthly pension is guaranteed, you can also earn more if the fund earns higher returns. For instance, APY has offered the following return benchmark rates in recent times:

1-Year Return Rate

2-Year Return Rate

3-Year Return Rate

5-Year Return Rate


Return Rate






Disclaimer: Benchmark rates released by the NPS Trust as on 06.04.2023.

2. Returns Under the National Pension Scheme (NPS)

NPS brings you the advantage of market-based returns, but these returns are not fixed and guaranteed. Returns from your NPS investment will depend on the NAV or Net Asset Value of your investments. Also note that your investment strategy plays a key role in determining NPS returns. In other words, an equity-heavy aggressive portfolio can generate better returns than a debt-heavy conservative one. 

Here’s an overview of the latest NPS return rates:

Tier I Scheme/Asset Class

1-Year Return*

5-Year Return

10-Year Return 

Scheme ‘E’ (Equity)




Scheme ‘C’ (Corporate Bonds)




Scheme ‘G’ (Government Bonds)




Scheme ‘A’ (Alternative Assets)




Disclaimer: Based on data released by the NPS Trust on benchmark rates as on 06.04.2023

Where Should You Invest for Optimal Returns: NPS or APY?

These NPS vs. APY return figures, suggest that NPS offers better returns than APY. Since NPS is a market-linked pension product, if the market is performing well, you can enjoy higher-than-average returns and, thereby, a larger retirement corpus. Alternatively, if the market experiences downswings, your pension fund might be affected. However, portfolio diversification can help you hedge market-linked risks and enjoy risk-adjusted returns. 


However, if you’re a risk-averse low-income investor weary of market volatility, then APY is the more prudent option. Since these returns are not market-linked, changes in the market fail to affect your earnings. Even if the return on investment for the accumulated corpus is lower than expected, the Government’s contribution to the scheme funds the deficiency. So, your pension amount remains unchanged.

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