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

A voluntary retirement scheme backed by the Government of India, the National Pension System (NPS) allows you to secure your golden years. This is a widely chosen investment avenue due to its potential National Pension Scheme returns and other benefits. 


While you get to enjoy tax benefits and flexibility on deposits or withdrawals, you can invest across asset classes, including government bonds, equity, corporate bonds and alternate assets. However, note that your asset returns are dependent on your fund managers responsible for allocating your assets.


Read on to delve into the details of the National Pension Scheme (NPS) that can help you choose the best NPS scheme for Tier 1 and Tier 2 accounts.

A Brief Overview of the National Pension Scheme

The National Pension Scheme is a secure investment avenue that assures reliable income and helps you achieve your goals for a comfortable retirement. This is a savings scheme applicable to all Indian citizens between 18 and 65 years. There is a relaxation of up to 70 years in NPS.


The PFRDA regulates the National Pension Scheme, safeguarding your interests and providing financial security after you retire. During your employment period, you can make contributions on a regular basis and enjoy the benefits post retirement. You receive the returns in the form of a steady income or annuity after retirement. 


You can choose pension fund managers who handle your investments across various assets like stocks, bonds, and alternative options. Your NPS returns depend on the chosen scheme's performance and your account holdings.


However, note that your pension amount depends entirely on the total amount that gets accumulated at the maturity of the NPS scheme. One of the best features of NPS is that you get to invest in debt and equity funds simultaneously.


You are allowed to invest around 75% in equities and the remaining 25% in debt funds, helping you accumulate a considerable amount. Based on this, you get to invest in two account types, known as Tier 1 and Tier 2 accounts.

What are NPS Tier 1 & Tier 2 Accounts?

NPS Tier 1 accounts offer tax benefits and adequate NPS returns through stock investments during a specific investment period. This account is mainly for retirement savings, and you need to make a compulsory contribution of ₹500 when investing in this account. 


The NPS Tier 2 accounts offer flexibility and liquidity, allowing you to withdraw funds as required while benefiting from growth opportunities and tax advantages. It is an open-access account which requires a minimum investment of ₹1,000. 


While you are allowed to make multiple withdrawals or can opt for a lump sum, remember that it takes around 3 days for the fund transfer to happen. While charges and fund schemes are quite similar in both accounts, it is mandatory to have a Tier 1 account for opening a Tier 2 account.

  • NPS Returns for Tier 1 Accounts

The NPS returns in Tier 1 and Tier 2 accounts depend on the performance of a fund. If you invest early, there is a higher chance of obtaining a better retirement corpus. As per the data obtained in 2021, the NPS interest rates hover between 9% and 12%.


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

Asset Classes

1-year Returns (%)

5-year Returns (%)

10-year Returns (%)





Corporate Bonds




Government Bonds




Alternative Assets 




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.

  • NPS Returns for Tier II Accounts

While you have a fair idea of the approximate rate of interest in an NPS Tier 1 account, take a look at the table below to understand the NPS Tier 2 interest rate. The table below includes NPS Tier 2 returns for 1, 5- and 10-year tenors across various asset classes.

Asset Classes

1-year Returns (%)

5-year Returns (%)

10-year Returns (%)





Corporate Bonds




Government Bonds




NPS encourages investment that results in the gradual accumulation of a substantial corpus. This, combined with the stable income from the annuity, can help you enjoy financial freedom during your retirement. 


You can also check the NPS returns history and, more specifically, NPS Tier 1 & Tier 2 return history to get deeper insights into the returns. 

Calculation of NPS Returns

As the returns are linked to the market, the amount you receive entirely depends on the performance of your chosen funds. You can get an idea of the NPS expected return by inputting details such as monthly contributions, age, chosen investment scheme, and your anticipated NPS rate of return using an NPS calculator


The calculator will provide an estimate of your corpus and pension upon maturity. Consider the following hypothetical example to understand better.


For example, consider an NPS investor of 30 years who makes a monthly payment of ₹5,000 until the age of his retirement, that is, 60 years. Assuming an NPS rate of return of 10%, then as per the estimated NPS scheme returns - 


Amount (₹)

Total investment

₹18.6 Lakhs

Interest earned

₹1.07 Crores

Total Corpus

₹1.26 Crores

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



Annuity investment

₹75.92 Lakhs

Lump sum withdrawal

₹50.61 Lakhs

Expected monthly pension


As mentioned earlier, the best way to get good National Pension Scheme returns is to invest early on. This is because it gives you the time to build a larger corpus, thereby allowing you to capitalise on the power of compounding.

FAQs on NPS Returns for Tier 1 and Tier 2 Accounts

How to start the best NPS scheme for Tier 1 and Tier 2 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 power, computing it manually can be quite time-consuming and cumbersome. Alternatively, you can use an online NPS calculator to assess the maturity value and expected NPS scheme returns.

Is there tax levied on NPS returns?

Note that tax is not levied on your NPS expected returns in case you are not opting for a premature exit.

Are returns in NPS guaranteed and fixed?

No, these returns are not guaranteed, as the returns are dependent on the pension fund manager you choose.

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