If you are someone in your 20s or 30s, retirement may seem too distant to you. Most millennials are not convinced of the idea to start saving for an event that is too far into the horizon. But, if you are financially smart and aware, you realize the cost of living is on the rise as we move forward. It becomes critical to have some savings, more so, for a phase in your life when you will not be working anymore and yet will have expenses to take care of. This is where retirement saving schemes such as the National Pension System come in. In the past, NPS interest rates have earned between 9% and 12% per annum.
National Pension Systemis a voluntary retirement savings scheme that allows you to save up for the golden period of your life. It is available to all Indian citizens between the ages of 18 and 65. You can keep contributing till you are 70 years old.
Let us look at the NPS rate of interest and everything else you need to know about this scheme.
What is NPS Interest Rate?
NPS is a market-linked product where you can strategically invest in a mix of equity, corporate debt, government debt, and alternative assets. When you choose the desired mix and select a fund manager, your money is actively invested in specific schemes aligned with these four asset classes. This way, you can effectively invest in NPS and closely monitor the returns at the scheme level.
Also, NPS gives you the flexibility to have two accounts –Tier I and Tier II accounts. The return is shown individually for Tier I and Tier II schemes.
Given below are the NPS Current Interest Rate for both Tier I and Tier II accounts as of 15th January 2021:
NPS Tier I 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 |
*Last updated as on Jan 15, 2023
NPS Tier II Returns
| 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% |
*Last updated as on Jan 15, 2023
How to Calculate NPS Interest
NPS returnsdepend upon the performance of the underlying assets in the NPS fund. This means that returns are market-linked and the NPS interest rate depends upon the market performance of the assets that have been invested in. NPS returns are also compounded.
Since NPS returns calculation is complex, it is best to use anonline NPS calculatorto compute NPS maturity and returns. The calculator will ask you to input your expected monthly contributions, age of starting investment, and the scheme you decide to invest in. Using this will predict your NPS corpus and pension upon maturity depending on
For instance, let’s take a 30-year-old investor making a monthly contribution of ₹5,000 until 60. Assuming a rate of return of 10%, their NPS investment at the time of retirement would be:
| Description | Amount (Rs.) |
| Total Principal Contributed | 18 lakh |
| Interest Earned | 93.98 lakh |
| Total NPS Balance | 1.1 crore |
Had the same investor invested a higher sum of ₹7,500 every month until 60, even at an interest rate of 8% per annum, the total pension wealth generated would have been the same.
NPS Interest Rate from Top Pension Fund Managers
Tabled below are the National Pension System interest rate fromtop pension fund managers:
HDFC Pension Management Co. Ltd.
| Fund | 1-year Returns(%)* | 3-year Returns(%)* | 5-year Returns(%)* | Returns Inception |
| Tier I Equities | 18.81% | 10.69% | 15.72% | 14.96% |
| Tier I Corporate Bonds | 14.22% | 10.36% | 10.15% | 10.71% |
| Tier I Government Securities | 14.26% | 11.80% | 10.88% | 10.72% |
| Tier I Alternative Assets | 8.78% | 8.90% | NA | 8.63% |
| Tier II Equities | 18.64% | 10.59% | 15.83% | 12.72% |
| Tier II Corporate Bonds | 13.70% | 10.24% | 10.16% | 9.79% |
| Tier II Government Securities | 13.38% | 11.55% | 10.73% | 10.94% |
*Last updated as on Jan 15, 2023
ICICI Pru. Pension Fund Mgmt Co. Ltd.
| Fund | 1-year Returns(%)* | 3-year Returns(%)* | 5-year Returns(%)* | Returns Inception |
| Tier I Equities | 17.50% | 9.57% | 14.44% | 11.91% |
| Tier I Corporate Bonds | 14.03% | 9.98% | 9.98% | 10.64% |
| Tier I Government Securities | 13.45% | 11.33% | 10.68% | 9.41% |
| Tier I Alternative Assets | 6.25% | 7.55% | NA | 7.37% |
| Tier II Equities | 17.92% | 9.74% | 14.54% | 10.24% |
| Tier II Corporate Bonds | 14.00% | 9.83% | 9.87% | 10.49% |
| Tier II Government Securities | 13.42% | 11.28% | 10.64% | 9.53% |
*Last updated as on Jan 15, 2023
LIC Pension Fund Ltd.
| Fund | 1-year Returns(%)* | 3-year Returns(%)* | 5-year Returns(%)* | Returns Inception |
| Tier I Equities | 15.33% | 7.64% | 13.11% | 12.05% |
| Tier I Corporate Bonds | 14.47% | 10.05% | 9.81% | 10.54% |
| Tier I Government Securities | 13.79% | 12.70% | 11.86% | 11.78% |
| Tier I Alternative Assets | 9.67% | 9.16% | NA | 8.26% |
| Tier II Equities | 15.19% | 7.54% | 13.05% | 9.47% |
| Tier II Corporate Bonds | 16.36% | 10.59% | 10.17% | 9.88% |
| Tier II Government Securities | 13.27% | 13.37% | 12.00% | 12.07% |
*Last updated as on Jan 15, 2023
NPS Interest Rates Taxation
Let us understand the taxation benefits of interest on NPS.
Subscribers canclaim deduction under Section 80CCDof the Income Tax Act against their contributions into the National Pension System. The deduction is available subject to the overall ceiling limit of ₹1.5 lakhs in a financial year, which includes other tax-saving instruments such asPublic Provident Fund,ELSSetc
- In the case of asalaried individual, the maximum deduction permissible under Section 80CCD (1) is 10% of your salary. This includes the basic pay and dearness allowance.
- In the case of aself-employed individual, the maximum deduction you can claim is up to 20% of your total gross income.
- Subscribers can claim an additional deduction of ₹50,000 under section 80CCD (1B) for their contribution towards the National Pension System. In other words, this deduction can be claimed over and above the deduction of ₹1.5 lakhs under Section 80CCD.
- Under Section 80CCD (2), if an employer makes contributions to an employee’s National Pension System, the employee can claim a deduction of up to 10% of their salary.
NPS Rate of Interest for Tier 1 Account
Tabled below are the NPS Tier 1 Interest Rates of top-performing equity pension fund managers.
| Pension Fund Managers | 1-year Returns(%)* | 3-year Returns(%)* | 5-year Returns(%)* |
| HDFC Pension Fund | 9.56% | 14.72% | 11.90% |
| Reliance Pension Fund | 9.15% | 12.05% | 10.32% |
| Kotak Mahindra Pension Fund | 9.28% | 13.00% | 11.12% |
| ICICI Pension Fund | 9.30% | 13.11% | 11.12% |
| UTI Retirement Solutions | 8.77% | 13.50% | 11.85% |
| Aditya Birla Pension Fund | 7.12% | NA | NA |
| LIC Pension Fund | 8.13% | 11.86% | 10.22% |
| SBI Pension Fund | 9.73% | 13.49% | 11.38% |
*Last updated as on Jan 15, 2023
Now, let us look at NPS Scheme Interest Rates for fund managers who generated the best equity fund returns on different tenures:
| Term | Best Returns | Pension Fund Manager |
| 1-year | 9.73% | SBI Pension Fund |
| 3-year | 13.50% | UTI Retirement Solutions |
| 5-year | 11.90% | HDFC Pension Fund |
NPS Rate of Interest for Tier 2 Account
Tabled below are the NPS Tier 2 Interest Rates for top-performing Pension Fund Manager in 2021.
| Pension Fund Managers | 1-year Returns(%)* | 3-year Returns(%)* | 5-year Returns(%)* |
| HDFC Pension Fund | 9.47% | 14.87% | 11.50% |
| UTI Retirement Solutions | 9.39% | 13.66% | 11.96% |
| ICICI Pension Fund | 9.32% | 13.16% | 11.14% |
| LIC Pension Fund | 8.51% | 11.74% | 8.97% |
| Reliance Pension Fund | 8.94% | 12.08% | 10.32% |
| Kotak Mahindra Pension Fund | 9.54% | 13.03% | 11.12% |
| SBI Pension Fund | 9.71% | 13.50% | 11.39% |
| Aditya Birla Pension Fund | 6.61% | NA | NA |
*Last updated as on Jan 15, 2023
Now, let us look at the top-performing National Pension System Tier 2 Equity Fund returns by best pension fund managers on different tenures:
| Term | Best Returns | Pension Fund Manager |
| 1-year | 9.71% | SBI Pension Fund |
| 3-year | 14.87% | HDFC Pension Fund |
| 5-year | 11.96% | UTI Retirement Solutions |
NPS vs. PPF: Interest Rates
Rate of interest in NPS is market-linked. The past trends have been in the range of 9% to 12% per annum. The current return on the Public Provident Fund is 7.10% per annum. From 2018 to 2020, it ranged between 7% to 8% per annum.
| Investment Type | Rate of Interest (per annum) |
| National Pension System | 9% to 12% |
| Public Provident Fund | 7.10% |
FAQs for NPS Interest Rate
How good is the NPS (National Pension System)?
NPS is a good investment scheme if your goal is to save for retirement purposes. It is a great initiative by the government to let you enjoy financial security once your working phase gets over.
What is an annuity in NPS and annuity rate?
An annuity is the amount of pension that a subscriber of NPS receives from the Annuity Service Provider (ASP). At the time of your National Pension System account’s maturity, you have to decide the percentage of the maturity amount you wish to reinvest to purchase an annuity. This percentage cannot be below 40% if you withdraw at 60 years or more. However, one must use 80% of the accumulated corpus to purchase an annuity if they exit before retirement. The expected annuity rate prevailing at that time will determine how much pension you will get.
What is the average return in the NPS scheme?
Return on NPS investments depends upon the performance of the underlying assets. NPS schemes have returned 9%-11% over 10 years.
Can a subscriber open only Tier II NPS Account?
No, subscribers can open a Tier II National Pension System account only if they have a Tier I account.
How many funds are there in NPS?
NPS funds are categorized depending upon the kind of instruments they invest in. At present, there are four different instruments to choose from: equities, corporate bonds, government bonds, and alternative assets. The Pension Fund Regulatory and Development Authority has authorized the following fund managers to manage NPS funds:
ICICI Prudential Pension Fund
LIC Pension Fund
Kotak Mahindra Pension Fund
Reliance Capital Pension Fund
SBI Pension Fund
UTI Retirement Solutions Pension Fund
HDFC Pension Management Company
Is there any guaranteed return provided under NPS?
No. NPS is a market-linked product, and returns depend upon the performance of the underlying assets.
Can a subscriber change/modify data in the NPS system after joining NPS?
Yes, a subscriber can request correction or change in personal details, a PRAN Card’s reissue, or change in bank details to the POP-SP (Point of Presence Service Providers). They can also update their signature and photograph by submitting a written request to the POP-SP.
Can a subscriber request for a duplicate PRAN Card?
Yes. In case a subscriber loses or damages their PRAN Card, they can submit a duly filled S2 form to the respective POP-SP to request a duplicate PRAN Card. Once the request is processed, the duplicate card is sent to the subscriber’s registered address.
What are the conditions of partial withdrawal?
Here are the conditions a subscriber needs to meet for partial withdrawal:
There cannot be more than 3 withdrawals during the entire subscription period.
The subscriber should be in the National Pension System for a minimum of 3 years.
The withdrawal amount cannot be more than 25% of the contributions made by the subscriber.
Withdrawal is only allowed for special reasons such as:
Treatment of critical illness
Marriage of children
Higher education of children
Purchase or reconstruction of a residential house (in specified conditions)
Can a subscriber switch between active choice and auto choice?
The active choice is for subscribers who wish to decide the asset allocation on their own. In contrast, the auto choice is for passive investors who want an automatic allocation to invest across the different asset classes. National Pension System allows its subscribers to switch between the two modes. They can change their asset allocation twice a year and the fund manager once a year.
What happens if a subscriber retires early?
If a subscriber exits from National Pension System before reaching retirement age, they must utilize 80% of their accumulated pension wealth to buy an annuity and withdraw the balance 20% as lumpsum.
What happens if a subscriber retires early?
If a subscriber exits from National Pension System before reaching retirement age, they must utilize 80% of their accumulated pension wealth to buy an annuity and withdraw the balance 20% as lumpsum.
How long it takes to reflect NPS contribution?
It takes T+2 days for the National Pension System contribution to get credited to the subscriber’s account.
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