Regular post-retirement income | Additional tax benefit on investments up to ₹50,000 u/s 80CCD (1B) - EEE Category | Regulated by PFRDA (Pension fund regulator under Ministry of Finance, Govt. of India) Invest Now

The National Pension System (NPS) offers two Tiers for savings: Tier I, a primary retirement account with a 60-year lock-in, and Tier II, a flexible voluntary account. Returns for both depend on investments in corporate bonds, government securities, and equities, tailored to individual preferences and risk tolerance.

NPS Tier I and Tier II Accounts Returns

The returns of NPS typically depend on the account you choose. 

  • NPS Returns for Tier I Accounts

The table below includes NPS Tier I returns for 1, 5, and 10 year tenors across various asset classes.

Asset Classes

1-year Returns (%)

5-year Returns (%)

10-year Returns (%)

Equity

37.28%

18.53%

14.39%

Corporate Bonds

7.30%

8.22%

9.00%

Government Bonds

8.91%

7.02%

8.67%

Alternative Assets 

Up to 11.59%

Up to 9.03%

NA

  • NPS Returns for Tier II Accounts

While you have a fair idea of the approximate rate of interest in an NPS Tier I account, take a look at the table below to understand the NPS Tier II interest rate. The table below includes NPS Tier II returns for 1, 5- and 10-year tenors across various asset classes.

Asset Classes

1-year Returns (%)

5-year Returns (%)

10-year Returns (%)

Equity

37.28%

18.53%

14.39%

Corporate Bonds

7.30%

8.22%

9.00%

Government Bonds

8.91%

7.02%

8.67%

Note that the above rates are tentative and calculated based on the performance of these asset types in the market. As the scheme is market-linked, the NPS interest rate varies depending on the performance of equity and debt funds.

 

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Calculation of NPS Returns

As the returns are linked to the market, the amount you receive depends entirely on the performance of your chosen funds. You can compute the expected returns using the NPS calculator

 

To get the results, input your monthly contributions, age, chosen scheme, and your anticipated NPS rate of return in the tool. The National Pension Scheme calculator will provide an estimate of your corpus and pension upon maturity. 

 

Consider the following hypothetical example to understand better.

 

Consider an NPS investor, aged 30 years, who makes a monthly NPS contribution of ₹5,000 until the age of retirement, i.e. 60 years. Assuming an NPS rate of return of 10%, the estimated NPS scheme returns using compound interest look like this:

Particulars

Amount 

Total investment

₹18 Lakhs

Interest earned

₹95,96,627

Total Corpus

₹1,13,96,627

Now, if the investor chooses to purchase an annuity for 40% and withdraw the remainder of the corpus, the pension would be:

Particulars

Amount(₹)

Annuity investment

₹68,37,976

Lump sum withdrawal

₹45,58,651

Expected monthly pension (approx.) 

₹37,989

Note: These values have been calculated for illustrative purposes. The actual returns may vary depending on the prevailing interest rate.

 

By investing early on, you could earn better National Pension Scheme returns. This is because it gives you the time to build a larger corpus, thereby allowing you to capitalise on the power of compounding.

Frequently Asked Questions

How to start the best NPS scheme for Tier I and Tier II accounts?

You can download the NPS mobile app and initiate your investment. You can also visit the eNPS website to get started with the process.

How to calculate the NPS interest rate?

The interest rate is calculated using compounding interest. Computing it manually can be quite time-consuming and cumbersome. Alternatively, you could use an online NPS calculator to assess the maturity value and expected NPS scheme returns.

Is there tax levied on NPS returns?

NPS is structured as an EEE scheme, wherein your contributions, partial withdrawals, and investment income are exempt from tax.

Are returns in NPS guaranteed and fixed?

No. The returns depend on the performance of the underlying assets you choose.

What are the benefits of investing in NPS?

Some benefits of investing in NPS include liquidity, tax benefits, and market-linked earnings.

Can I apply for the NPS through a post office?

Yes, as per the Pension Fund Regulatory and Development Authority (PFRDA) you can apply for the National Pension Scheme with post offices offline.

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