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How Much Returns Can I Expect From NPS Scheme In 2022?

Personal Finance

Every person desires complete financial freedom, even when they retire. Just imagine how good it would be if you never had to rely on anyone else for financial support during your later ages. The NPS scheme can help you fulfil this wish.

The NPS or National Pension Scheme allows you to build a solid retirement corpus that will help you maintain your financial freedom after you retire from your work. In this article, we will talk about NPS returns and how it compares with other pension schemes. Let’s dig in.

Who Should Invest In NPS Scheme?

Every Indian citizen can invest in the NPS or National Pension Scheme. If you don’t have the risk appetite to invest in high-risk investment options like stocks or equity mutual funds but still want to build a corpus to have a relaxing retirement life, NPS is the perfect investment scheme for you. 

It comes with a systematic investment option where you would invest a certain amount of money towards the scheme. Your investment will mature once you turn 60 and retire from your regular job. At that time, you will get a certain portion of the corpus in a lump sum.

Meanwhile, the other portion will be invested in annuities to provide you with a monthly pension until a certain age.

NPS Returns For Tier 1 And Tier 2 Accounts

NPS scheme returns from Tier 1 and Tier 2 are controlled by the Pension Fund Regulatory and Development Authority or PFRDA. These NPS funds are managed by multiple pension fund managers who try their best to get the maximum return on your invested money.

The pension fund managers allocate your NPS funds to four separate asset classes. These asset classes are equity, government bonds, corporate bonds, and alternative assets. The fund managers distribute your investment amount to two or more of these asset classes depending on your expected annual return rates.

Please note that there is no fixed return rate when it comes to the NPS scheme. The annual return rate depends on the market performance. That’s why the sooner you invest in this pension scheme, the more retirement corpus you can build at the end of the maturity period.

NPS Return Rates for Tier 1 Accounts

Asset Classes1-year return rate (% per year)5-year return rate (% per year)10-year return rate (% per year)
Equity15.33% – 18.81%13.11%-15.72%10.45%-10.86%
Corporate Bonds12.46% – 14.47%9.27%-10.15%10.05%-10.64%
Government Bonds12.95% – 14.26%10.29%-10.88%9.57%-10.05%
Alternative Assets3.98% – 16.73%NANA

NPS Return Rates for Tier 2 Accounts

Asset Classes1-year return rate (% per year)5-year return rate (% per year)10-year return rate (% per year)
Corporate Bonds12.71%-16.36%9.55%-10.17%9.86%-10.60%
Government Bonds12.61%-13.42%10.40%-12.00%9.59%-10.07%

How To Calculate NPS Returns?

The returns on your investment in the National Pension Scheme are linked with the market. So, the NPS returns depend on the platform and your specified risk appetite.

However, it does not mean that you can’t estimate your possible NPS returns. Many online platforms offer free NPS calculators. These online tools help you determine your NPS scheme corpus and return within seconds as long as you enter the correct data. 

Usually, most calculators ask for the following information:

  • The amount of money you want to invest towards the NPS plan every month
  • Your expected return rates per year
  • Your current age
  • Some calculators also ask how much money you would like to re-invest in the annuities. Please note that you must invest at least 40% of your NPS corpus in different annuities to receive a fixed amount of money as a pension every month after you retire.

Once you input the information mentioned above into the NPS scheme calculators, they will show you the following:

  • Total investment
  • Interest earned
  • Maturity amount
  • Minimum annuity investment

Comparison Between NPS And Other Pension Schemes

Below is a table that compares NPS and other pension schemes in India:

Pension Plan NameAge Limit in YearsMinimum Investment per Year Tax BenefitsFlexibility
NPS Scheme18 – 60Rs. 10,000You can save up to Rs. 2 lakhs in tax under Section 80CCD(1) and 80CCD(2).The investment will be in lock-in until you become 60 years old. Partial withdrawals are allowed after 10 years of the initial investment.
Whole Life Unit-linked Plan18 – 69Single payment starts at Rs. 12,000Up to Rs. 1.5 lakhs under Section 80C.It comes with a lock-in period of 5 years. However, partial withdrawals are allowed.
Regular Pension Plans18 – 60Rs. 18,000 – Rs. 24,000Up to Rs. 1.5 lakhs under Section 80C.It comes with a 15-year lock-in period. You can’t make partial withdrawals. However, you can secure loans using the pension plan funds as security.
PPF (Public Provident Fund)The minimum age requirement is 18 years old. There is no upper age limit in this investment scheme.Rs. 5,000Up to Rs. 1.5 lakhs under Section 80C.Your money will be in lock-in for the next 15 years. However, partial withdrawals are possible after 5 years of the initial investment.

Final Words

If you want to create a retirement fund that will pay for your retirement expenses, the National Pension Scheme or NPS is a great option. It allows you to slowly build a retirement corpus through small monthly investments. Plus, it gives you greater returns on your investments compared to other pension policies. 

You can also calculate the NPS returns using a free online NPS calculator. To learn more about the NPS scheme, check out the Piramal Finance website.