Investing in National Pension Scheme is a good idea?

Personal Finance

Are you interested in investing in the National Pension System but need some more information? Do you want to know what kind of NPS scheme returns are offered and whether you should invest in it or not? This article explores aspects of the National Pension System, its features, policies, investments, scope, returns and more. By looking in detail at NPS scheme returns, tax saving NPS and other aspects, you can find out whether this investment is a good idea for your specific financial situation and future.

What is the National Pension System?

NPS or the National Pension System (NPS) is an initiative by the Government of India for the protection and betterment of the retired class. It promotes investment among the working class so that they can take out the corpus after their retirement. The National Pension System encourages you to invest in the scheme at regular intervals and in return, your money compounds at an interest rate. Over the years, this investment grows into a big amount and yields returns. 

The Pension Fund Regulatory and Development Authority (PFRDA) brought tax saving NPS schemes into action under the guidance of the Central Government for the social security of the retired class. When it was initially implemented, it was restricted to Government employees only. But after some changes were introduced, it was made available to all Indian citizens. Whether you are a Government employee or work for a private firm, you can invest in NPS voluntarily. 

Why Do People Invest in the National Pension System?

There are many reasons people choose to invest in the National Pension System. The main reason is to plan a better life after your retirement. Pension is considered a source of regular income for retired people. Receiving an income in the form of a pension after retirement makes a practical difference in the lives of retirees and gives people confidence in their financial future.

For example, a salaried individual can take a portion of their salary, which they regularly receive every month. This money is then invested in the National Pension System with the guarantee that the NPS scheme returns will be beneficial to them in the future.

Early retirement is another reason. For those who plan to retire early, NPS scheme returns will help them in their early retirement plans by giving them financial security in their retirement years.

What are the Benefits of Investing in NPS? 

There are several benefits of investing in the National Pension System. Some of these advantages include:

  • Handsome Returns

NPS, in terms of NPS scheme returns, is a profitable option to invest in and get better outcomes. It has an annual return of about 8 per cent to 10 per cent, which is attractive compared to other Government schemes. Unlike the Public Provident Fund, where the interest rate is not as good, the NPS scheme returns are favourable to its investors.

  • Lesser Risks

In terms of risk assessment, the National Pension System is better than other investment schemes. There is currently a 50% cap on equity exposure, which is a good percentage. This somehow stabilizes the risk equations and also means that the corpus, which you collect at the end, is free from market volatility. In addition, PFRDA has proposed to increase the cap on equity exposure to 75%.

  • Highly Tax-Efficient

NPS happens to be a very tax-efficient scheme where you can be exempted from tax to a fair extent. For the NPS tax saving scheme, the tax deduction goes up to Rs. 1.5 lakh and in some cases, it even touches the mark of Rs. 2 lakhs under section 80C. Forty per cent of the total money that you have saved is kept in the account as the minimum amount that you cannot withdraw. Out of the remaining 60%, 40% is tax-free and only the remaining 20% of this sixty per cent amount is subject to taxation.

  • Highly Economical

Among all the other investment schemes, the National Pension System stands to be a highly economical investment scheme. Even if you add a small amount of money every month to your NPS account, you can still make interest out of it. 

  • High Flexibility

There is high flexibility in the National Pension System because of the reliable investment pattern and the diversity of investment options it provides. You can even optimise returns according to your convenience with the asset class and fund managers. 

NPS Scheme Returns

There are good return rates for both Tier 1 and Tier 2 returns.

  • Tier 1 return rates on all corporate, government and equity asset classes range from 12.5% to 14.5% for the first year, 9.27% to 10.15% for 5 years and 10.05% to 10.64% for 10 years of investment. 
  • Tier 2 return rates on all corporate, government and equity assets of the tax saving NPS scheme range from 12.7% to 16.4% for the first year, 9.55% to 10.17% for 5 years and 9.86% to 10.6% for 10 years of investment.

In total, return rates change from time to time and depend more on the current market structure.


The National Pension System is a beneficial initiative by the Government of India for the financial safety and security of the retired class. In addition, the good NPS scheme returns make NPS a profitable long-term investment option. Salaried people who want to prepare for their post-retirement life or who are planning an early retirement can invest in the National Pension System and benefit from the NPS scheme returns. For more information on the tax saving NPS and other aspects of the National Pension System, visit Piramal Finance. There are similar articles that focus on pension schemes and post-retirement financial planning that you will find interesting and useful.