National Pension Scheme (NPS) Returns

NPS returns are market-linked, unlike traditional pension plans that offer fixed returns, making them potentially higher but subject to market fluctuations.
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NPS returns
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4 mins
08-April-2026

Retirement planning in India can feel overwhelming without clarity on the right investment tools. Among the available options, the National Pension Scheme (NPS) stands out as a reliable, government-backed solution. It offers market-linked growth, tax benefits, and long-term savings for a secure retirement. NPS returns vary based on the asset mix and fund performance but have historically been competitive. If you're exploring ways to build a retirement corpus, tracking national pension scheme returns is a smart move.

What are NPS returns?

National Pension Scheme (NPS) returns represent the profits generated from the contributions made by individuals or organisations into their NPS accounts over time. These returns depend on how fund managers invest across different asset classes such as equities, government securities, corporate bonds, and alternative investment options within the NPS structure.

These returns play a key role in retirement planning, as they directly influence the total corpus built over the years. The overall returns determine how much wealth is accumulated, which ultimately affects the pension or steady income received after retirement. Higher returns lead to a larger retirement fund, enabling better financial security in later years.

The Pension Fund Regulatory and Development Authority (PFRDA) is responsible for regulating and supervising the NPS ecosystem. It establishes rules for fund managers to ensure transparency, fairness, and adherence to investment guidelines. Additionally, it tracks the performance of pension fund managers, conducts regular evaluations, and implements necessary measures to protect the interests of NPS subscribers.

Types of NPS investment options and their returns

Under the National Pension System (NPS), investments are spread across different asset classes, each offering a distinct risk-return profile:

Equity (E)

This option primarily invests in equity markets, with a focus on large-cap and select mid-cap companies. It offers higher return potential but comes with relatively higher risk.

Corporate Debt (C)

This category focuses on corporate bonds, mainly rated AAA and AA+, aiming to reduce credit risk while delivering stable and consistent returns.

Government Securities (G)

This option invests in government bonds and securities, following a balanced and actively managed approach to ensure steady returns with comparatively lower risk.

Benefits Offered by the National Pension Scheme

1. Tax exemption

One of the primary benefits of investing in NPS is tax exemption. Investors can claim a tax deduction on their contributions made during the year, up to a maximum of Rs. 1.5 lakhs under Section 80CCE of the Income Tax Act, 1961. An additional deduction of Rs. 50,000 is available under Section 80CCD (1B).

2. Returns

NPS investments offer market-linked growth, and individuals can receive a regular pension after retirement. NPS returns vary based on fund manager performance and asset allocation. Historically, NPS returns have been competitive compared to other long-term investment options.

3. Simple exit rules

NPS provides flexible exit options. After the age of 60, investors can withdraw up to 60% of the accumulated corpus as a lump sum, while the remaining 40% is used to buy an annuity that ensures a steady post-retirement income.

Types of NPS Account

1. Tier I Account

  • The National Pension Scheme (NPS) account is a mandatory account for all employees.

  • NPS offers tax exemption up to Rs. 2 lakh p.a. (Under 80C and 80CCD).

  • The minimum NPS contribution for opening an account is Rs. 500

  • There is no limit on the maximum NPS contribution.

2. Tier II Account

  • The National Pension Scheme (NPS) Tier II account is an optional for employees.
  • Withdrawals from NPS NPS Tier-II account are permitted.
  • Tax exemption is 1.5 lakh for government employees and none for other employees.
  • The minimum NPS contribution for opening an account is Rs.1,000
  • There is no limit on the maximum NPS contribution.

Also Read: How to Invest in NPS Online

NPS Returns for Tier I & Tier II Accounts

Here are the NPS interest rates of Tier I and Tier II accounts as of December 31, 2022.

1. NPS Returns for Tier I Accounts

Asset ClassesEquity (Class E)Corporate Bonds (Class C)Government Bonds (Class G)Alternate Assets (Class A)
1-year returns (%)15.33-18.81%12.46-14.47%12.95-14.26%3.98-16.73%
5-year returns (%)13.11-15.72%9.27-10.15%10.29-10.88%NA
10-year returns (%)10.45-10.86%10.05-10.64%9.57-10.05%NA


2. NPS Returns for Tier II Accounts

Asset ClassesEquityCorporate BondsGovernment Bonds
1-year returns (%)15.19-17.92%12.71-16.36%12.61-13.42%
5-year returns (%)13.05-15.83%9.55-10.17%10.40-12%
10-year returns (%)10.35-10.58%9.86-10.60%9.59-10.07%


How to Calculate NPS Returns

To calculate NPS returns, you can use NPS trust online calculator. The calculator will ask you to enter the monthly amount you want to invest, your current age, and the expected rate of return.

Who should invest in NPS?

NPS is suitable for individuals who are looking for a long-term investment option with retirement planning in mind. Additionally, it is suitable for individuals who are comfortable with market-linked returns and who have a moderate to high-risk appetite.

Step by Step Process to Open an NPS Account

1. Offline Process

To open an NPS Account offline, visit the nearest Point of Presence (POPs) authorized by PFRDA. These are specific banks and financial institutions providing NPS services. At POPs, you can subscribe to the NPS Scheme, make changes, and access related services. Just fill out the form with basic details and submit essential KYC documents like Aadhar card and PAN card.

2. Online Process

  • Click on 'Registration' and choose 'Register with Aadhaar' option.
  • Type your Aadhaar Number and click on the "Generate OTP" option.
  • You will receive the OTP on your registered mobile number.
  • Enter the OTP, along with your personal, nomination, and bank details.
  • After the successful submission, you will receive a Permanent Retirement Allotment Number (PRAN).
  • Click on the 'e-signature' option, and you will receive another OTP.
  • Enter OTP to verify your signature and make the payment, and you're done!

Tax on NPS Returns

Contributions to the NPS scheme are eligible for tax benefits under Section 80CCD(1). Salaried individuals can claim deductions up to 10% of their salary (Basic + DA), while self-employed individuals can claim up to 20% of their gross income—both within the Rs. 1.5 lakh limit under Section 80CCE.

Additional deductions are available under Section 80CCD(2) for employer contributions. Government employees can claim up to 14% of salary, and private-sector employees can claim up to 10% (old regime) or 14% (new regime). This benefit is over and above the Rs. 1.5 lakh limit and does not apply to self-employed individuals.

Conclusion

The National Pension Scheme (NPS) provides a simple solution for retirement planning, whether through an offline process at authorized Points of Presence or online registration via Aadhaar, opening an NPS account is easy. With an emphasis on long-term financial planning and market-linked returns, NPS is a practical choice for a secure retirement future.

For a more balanced approach, consider complementing your NPS contributions with the stability and guaranteed returns of a fixed deposit. This helps diversify your retirement portfolio and offers a reliable income source. 

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FAQs

What is the average return of NPS?

The National Pension System (NPS) typically delivers annual returns ranging from 9% to 12%, depending on the investor’s asset allocation and fund performance. As per ICICI Bank, Tier 1 equity investments have shown average returns of 10.5% over 1 year, 9.8% over 3 years, and 11.2% over 5 years. According to Groww, equity investments in NPS have yielded 15.33% to 18.81% in 1 year and 13.11% to 15.72% over 5 years.

How much return can I expect from NPS?

Returns from NPS generally range between 9% and 12%, depending on how your investment is distributed among equities, corporate bonds, and government securities. The performance of each asset class influences the final return, with equities offering higher potential returns but also higher risk.

Is NPS return taxable?

At retirement, up to 60% of the NPS corpus withdrawn as a lump sum is tax-free, and the amount used to buy an annuity is also exempt from tax. However, the regular pension received from the annuity is taxable as per the individual's applicable income tax slab.

Which NPS has the highest return?

Equity-based NPS schemes (Scheme E) generally offer the highest returns because they invest primarily in stocks. Their long-term performance usually surpasses corporate debt and government securities options. However, returns vary across pension fund managers and market conditions, so the “highest-return” NPS fund can change over time. Choosing a higher equity allocation typically leads to better long-term growth.

How to get Rs. 50,000 pension per month in NPS?

To receive around Rs. 50,000 per month from NPS, you need to build a sufficiently large retirement corpus and allocate a portion to an annuity at retirement.

  • At age 60, at least 40% of the corpus must be used to buy an annuity, while the rest can be withdrawn lump sum.
  • To generate Rs. 50,000/month (Rs. 6 lakh annually), you typically need a corpus of ~Rs. 1.2–1.5 crore (assuming ~5–6% annuity returns).

How to reach this corpus:

  • Start early (ideally in your 20s or early 30s)
  • Invest consistently (monthly SIP-style contributions)
  • Allocate a higher portion to Equity (E) in early years for better growth
  • Increase contributions over time (step-up investing)

A realistic approach could be investing Rs. 10,000–20,000/month for 25–30 years, depending on returns (~8–10%).

How does NPS pay after 60 years?

After turning 60, NPS follows a structured withdrawal process:

  1. Up to 60% of the corpus can be withdrawn as a lump sum (tax-free).
  2. Minimum 40% must be used to purchase an annuity, which provides a monthly pension.

The pension is then paid by annuity service providers (insurance companies), and you can choose options like:

  • Lifetime pension
  • Pension with spouse continuation
  • Return of purchase price to nominee

The amount you receive depends on:

  • Total accumulated corpus
  • Annuity rates at the time of retirement
  • Type of annuity plan selected 
Which NPS fund is giving the highest return?

NPS returns vary by fund manager and asset class. Historically:

  • Equity (E) schemes have delivered the highest long-term returns (~10–14%)
  • Corporate Debt (C) offers moderate returns (~7–9%)
  • Government Securities (G) provide stable but lower returns (~6–8%)

Among Pension Fund Managers, names like:

  • SBI Pension Funds
  • HDFC Pension Management Company
  • UTI Retirement Solutions

have consistently performed well across categories, though “highest return” changes over time based on market conditions.

Key takeaway:
Instead of chasing the top-performing fund, focus on:

  • Long-term consistency
  • Proper asset allocation (E, C, G mix)
  • Your risk profile and investment horizon
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