NPS vs APY

NPS vs APY: NPS focuses on retirement, while APY is a government-backed pension scheme.
NPS vs APY
3 min
08 April 2024

Retirement planning is a crucial aspect of ensuring your financial well-being and peace of mind in the golden years. Government-back schemes like the NPS and APY help investors secure a corpus for their post-retirement years and maintain a comfortable standard of living. Regulated by PFRDA, both schemes focus on offering financial security during one’s retirement.

Despite these similarities, the differences between NPS and the Atal Pension Yojana stand out. To choose the right retirement investment option, you have to carefully analyse the NPS vs APY debate and pick a retirement scheme that best matches your financial objectives and retirement aspirations.

Understanding Atal Pension Yojana vs NPS

The Indian government has introduced several initiatives and schemes to streamline and simplify retirement planning for citizens. The National Pension Scheme (NPS) and Atal Pension Yojana (APY) are two of the most popular retirement schemes launched by the Indian Government. Since their launch, the NPS vs Atal Pension Yojana debate has perplexed several potential investors.

Aimed at offering retirement benefits to subscribers, both these schemes differ in terms of their eligibility, investment structures, and payout guarantees. The NPS is a voluntary retirement savings scheme that offers market-linked returns to individual subscribers. The APY scheme is a government-backed pension scheme that offers a fixed and guaranteed retirement income to subscribers from the low-income, unorganised sector.

Understanding the Atal Pension Yojana vs NPS debate and key differences helps investors make informed decisions about their retirement savings journey.

Explaining the National Pension Scheme

The NPS, or National Pension Scheme, is a voluntary retirement scheme launched in 2004. This government-initiated long-term investment plan is overseen and regulated by the Pension Fund Regulatory and Development Authority. NPS investments are open to workers across the public, private, and unorganised sectors between the ages of 18 and 70.

You make regular contributions to your NPS account, investing in varied asset classes depending on your risk appetite and age. Upon retirement, you can withdraw up to 60% of the corpus as a lump sum, while the remaining 40% can be converted into an annuity for regular monthly income post-retirement.

Complementing your NPS investments with safe investments like FDs helps mitigate market-linked risks. Those seeking to grow their retirement funds safely and sustainably can benefit from options like Bajaj Finance FDs that offer high interest rates of up to 8.85% p.a.

Explaining the Atal Pension Yojana

The Atal Pension Yojana, or APY, is a government-backed pension scheme specifically designed for the unorganised sector. Launched in 2015, the APY scheme is regulated by the Pension Fund Regulatory and Development Authority. It is open to all Indian citizens between the ages of 18 and 40.

Under the APY scheme, you are entitled to a monthly pension after attaining the age of 60 years. This guaranteed pension amount can be Rs. 1,000, Rs. 2,000, Rs. 3,000, Rs. 4,000, or Rs. 5,000, depending on your contributions during the investment tenure.

Major differences between NPS vs Atal Pension Yojana

We have highlighted the differences between the NPS and the Atal Pension Yojana below to help you make an informed choice between these two pension schemes:

Variable

National Pension System (NPS)

Age of Entry

The minimum entry age for subscribers is 18 years, while the maximum age of entry is 70 years.

Subscriber Profile (Eligibility)

NPS investments are open to both resident and non-resident Indians (NRIs).

Types of Accounts

NPS offers two types of accounts. Tier I accounts are default retirement accounts, while Tier II accounts are voluntary savings accounts.

Pension Guarantee

NPS does not guarantee a specific pension amount post-retirement.

Investment Choice

Investors can choose from a variety of asset classes, such as equity, government securities, and corporate bonds. They can also choose from active and auto asset allocation mechanisms, depending on their risk appetite and investment knowledge.

Tax Benefits

Subscribers can claim total tax benefits of up to Rs. 2 lakh under Section 80C and 80CCD on their NPS contributions.

Premature Withdrawals

Premature withdrawals are only permitted from Tier II accounts.

Returns and Payout

Payout is determined by your contribution and the performance of your selected assets.

 

Similarities between NPS and APY

In the APY vs NPS debate, the differences between the two become quite prominent. Despite these similarities, these schemes also share several common features. Both share the following similarities:

  • The NPS and APY schemes are overseen and regulated by the PFRDA. The PFRDA ensures regulation compliance, protects investor interests, and fosters transparency in their operations.
  • Both these schemes focus on retirement planning, helping investors create a retirement corpus for their golden years.
  • The pension received under both these schemes is subject to taxation as per the subscriber's applicable tax slabs.
  • Subscribers enjoy a fixed monthly pension throughout their lives after the maturity of both schemes.

Calculate your expected investment returns with the help of our investment calculators

Investment Calculator
SIP Calculator FD calculator SDP calculator Gratuity Calculator EPF Calculator
Lumpsum Calculator Step Up SIP Calculator Sukanya Samriddhi Yojana Calculator PPF Calculator RD Calculator

Frequently asked questions

Is it better to put money into NPS?

The choice between NPS and APY depends on your risk appetite and payout expectations. While APY offers predetermined and guaranteed pension payouts, NPS offers market-linked returns, which are not guaranteed. Market-linked returns can benefit investors looking to secure inflation-beating returns and a larger retirement corpus in the long run.

Can I start an APY account without a savings account?

No. According to the rules and regulations of the Atal Pension Yojana, a savings bank account is an essential prerequisite for all APY subscribers.

What is the distinction between PPF and NPS?

PPF, or Public Provident Fund, is a low-risk government-backed savings scheme that offers fixed returns. On the other hand, NPS is a retirement-specific investment vehicle aimed at creating a retirement corpus with market-linked returns.

Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.