NPS Returns - Everything You Need to Know

04 Jan 2023

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Every person wants to live with financial liberty without compromising their standard of living during the advancing years and it is possible with a pension scheme. With a mission to provide social security to every old age Indian citizen, the Government of India started the National Pension System that allows one to voluntarily invest, accumulate savings and get a lump sum amount in a form of regular income through an annuity plan on retirement.

What is NPS?

Launched on 1st January 2004 under the Pension Fund Regulatory and Development Authority (PFRDA) purview, The National Pension System (NPS) provides retirement income to all Indian citizens. NPS scheme aims to inculcate the habit of saving for retirement amongst the citizens. The NPS scheme provides financial security and stability during old age when people don't have a regular source of income.

Features of NPS

  • The subscriber of NPS is allotted a unique Permanent Retirement Account Number (PRAN).
  • This unique PRAN can be used by NPS subscribers from any location in India.
  • PRAN provides access to two kinds of NPS accounts:
    • Tier I Account: A non-withdrawable account meant for savings for retirement.
    • Tier II Account: A voluntary savings facility where the subscriber is free to withdraw savings from this account whenever the NPS subscriber requires it.
      Tier – I Tier – II
      Individual Pension Account Optional Account-Require on active Tier-I
      Withdrawal as per rules/regulations only Unrestricted withdrawals
      Min. Contribution to open Rs. 500 Min. Contribution to open Rs. 1000
      Min. Contribution per year Rs. 1000 Min. Contribution Rs. 250
      Tax benefits are available No tax benefits on contribution/gains

What Is the Return on NPS?

NPS Returns are delivered by NPS Pension Fund Managers. As an NPS subscriber, you can select one of 8 Pension Fund Managers (PFMs) in the NPS. You can also select the split between the four NPS asset classes – Equity, Corporate Bonds, Government Bonds, and Alternate Assets. The NPS returns depend on the asset allocation and the selected Pension Fund Managers. Since the NPS scheme is a long-term investment, the earlier you start contributing to the NPS, the longer your money will grow, giving you good returns. NPS returns are much higher than other traditional tax-saving investments.

Must Read - Tax Benefits Under NPS One Can Avail of

Are NPS Returns Fixed?

The returns on NPS investments are usually affected by market fluctuations and are therefore not fixed. There may be many other reasons such as:

  • The NPS investment depends on markets as NPS subscribers invest in equities and debts.
  • The amount of return depends on the NPS performance enabling the NPS subscriber to wisely choose before fixating on a particular fund manager.
  • And finally, a desirable manager allocates an NPS subscriber’s assets across the market precisely so that the NPS subscriber gets high NPS returns.

Checking NPS Fund Performance

Keeping a check on your NPS fund performance is important because an NPS fund’s performance will give you an insight into how the NPS fund performed in various markets in the past.

Must Read - Top 5 tax saving investment options

Frequently Asked Questions

- Is there a guaranteed return on NPS?

Since your NPS investment is fully dependent on the scheme and the Pension Fund Managers you have chosen there are no fixed returns on NPS.

- Can I calculate my provisional pension on maturity beforehand?

Yes. You can always calculate your provisional pension on maturity beforehand with the help of an online NPS pension calculator that calculates your estimated lump sum pension amount.

- Is there any tax on NPS returns?

No, there is no tax on your NPS returns unless you opt for a premature exit. If you wish to withdraw your NPS pension before the maturity period, you will be liable to withdraw 20% of the corpus, which is taxable as per the government tax slab rate.

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