NPS, or National Pension Scheme, is a contribution-based pension plan launched by the Government of India. It is a voluntary scheme, set up by the State to help an individual create a retirement corpus for old-age benefits.
Any Indian resident between the ages of 18 to 60 years is eligible for the NPS. This scheme is not market-linked ensuring stable returns after the end of the investment tenor.
NPS returns are distributed by the fund managers acting on behalf of the National Pension Scheme. A beneficiary can select from 8 different pension fund managers (PFM), depending on the asset groups (equity, corporate bonds, alternate assets, and government bonds), tier, and split the total investment accordingly. The returns earned from the National Pension Scheme depend on the asset allocation and PFM an investor opts for.
NPS is ideal for long-term investments, as the returns increase by an allocation amount depending on the asset classes. However, there is no pre-determined compounding rate for National Pension Scheme returns; an investor can determine the return with the help of the Compounded Annual Growth Rate of each asset over time.
The NPS Tier-I returns on the corporate, alternate assets, government and equity asset classes, respectively, for 1-year, 5-year and 10-year returns.
|
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 |
Note - Last updated as on January 15, 2021
NPS Tier-II return rates on corporate, government, and equity asset classes as of 15th January 2021, for 1, 5 and 10-year are mentioned here-
|
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% |
Average returns on Tier 1 assets –
| Asset Classes | 1-year Return |
3-year Return |
5-year Return |
Returns since Inception |
Equity |
3.6% |
9.5% |
8.74% |
10.67% |
Corporate Bonds |
13.59% |
9.00% |
10.34% |
10.31% |
Government Bonds |
20.28% |
10.29% |
11.56% |
10.15% |
Alternative Assets |
9.89% |
NA |
NA |
7.67% |
Average returns on Tier 2 assets –
| Asset Classes |
1-year Return |
3-year Return |
5-year Return |
Returns Since Inception |
3.69% |
9.59% |
8.70% |
9.15% |
|
13.01% |
8.80% |
9.95% |
9.57% |
|
19.83% |
10.13% |
11.44% |
10.31% |
The National Pension Scheme is available for every Indian citizen who wants to build a retirement corpus via NPS scheme returns. The scheme can be continued by a single investor as many times as he or she switches jobs.
NPS is ideal for individuals who want to create a source of regular inflow of cash post-retirement, yet do not have the risk appetite to invest in market-dependent policies like Mutual Funds. Moreover, such systematic investment plans come with several features and benefits, which make them suitable for everyone.
The funds invested in the National Pension Scheme do not attract any taxes, whereas the amount withdrawn is tax exempted in accordance with Income Tax Act 80CCD.
The tax calculation on the withdrawn amount of NPS returns 2019 falls into 2 different categories. These are the following –
Moreover, one can also claim tax exemptions on any additional self-contribution under Section 80CCD(1B) provided the invested amount is within Rs. 50,000. In total, NPS returns are eligible for a tax exemption of up to Rs. 2 Lakh overall.
National Pension Scheme returns are significantly higher when compared to other long-term tax-saving instruments like Public Provident Funds. A portion of the invested amount goes to equities, allowing NPS to outperform other forms of investment options.
National Pension Scheme has been in effect for more than 10 years and has delivered a steady 8% to 10% return every year since its conception. Moreover, one can also change their fund manager if they want a different investment portfolio for their funds.
The National Pension Scheme offers either auto or active choice for the investment. The auto choice assesses an investor’s age and calculates the risk portfolio automatically; for example, an investor nearing his or her retirement would prefer less risky options that provide assured returns, whereas younger investors can utilise options which come with risks to earn higher NPS returns. Active choice allows an investor to select investment options and split their funds accordingly in order to gain substantial returns.
Despite the higher earning potential, the associated risk is significantly low as the equity exposure is capped at 50% to 75% for all NPS return rates. Moreover, the equity portion reduces by 2.5% every year once an investor crosses 50 years of age. That safeguards the funds from market volatility and stabilised the risk-return equation to assist an investor.
National Pension Scheme allows an investor to continue investing until he or she attains 60 years of age, post which they will be eligible to withdraw the entire corpus of their investment.
Every investor is obligated to maintain at least 40% of the total invested corpus in the NPS fund to earn a regular pension after their retirement. However, one is eligible to withdraw 25% of the total corpus for certain purposes after they have invested in the pension fund for a minimum of 3 years.
There can be a total of 3 withdrawals made throughout the investment tenor, each within a minimum gap of 5 years. An individual can withdraw funds to pay for medical requirements for themselves or for dependents, to build or purchase a house, or to pay for their children’s higher education.
A National Pension Scheme account can be opened following both the online and offline application processes.
One can visit any PFRDA-approved financial institution to complete the pen and paper method of opening an NPS account. The applicant will have to submit a subscriber form from the point of contact station and follow the KYC guidelines to complete the registration process.
Once the registration is completed, they will have to make the initial investment, post which a Permanent Retirement Account Number will be generated. This unique number and a password provided along with it will allow you to check up on the status of your accumulated NPS Scheme returns.
In case an applicant opts for the online process, he or she will have to navigate to the official website of the National Pension Scheme and link their PAN, Aadhaar, or phone number to their profile on the server. Once registration is complete, an OTP will be sent to the provided mobile number, which will be used to generate the Permanent Retirement Account Number.
A considerably high NPS return rate and assured returns make the National Pension Scheme one of the most trusted investment options for retired individuals in India. It is a flexible investment option for both risk-avert as well as aggressive individuals, helping them create a substantial corpus to utilise post-retirement.
Being available to every Indian citizen, albeit on a voluntary basis, it holds immense value to every public and private sector employee who seeks a regular pension after they retire.