April 26, 2023

NPS Returns and How to Check/Calculate: Scheme, Rate, Tier 1, & Tier 2

NPS returns

A National Pension System (NPS) scheme is a kind of voluntary savings scheme wherein subscribers contribute money towards it and plan for retirement through pensions upon maturity.
Since a lot of Indians fail to prepare for their retirement and face hard times in arranging funds post-retirement, NPS provides them with a sustainable solution to the problem.
When the scheme matures, a portion of the accumulated money goes into purchasing annuities through which the retired person can receive monthly pensions. Also, the subscriber can withdraw a maximum of 60% of their accumulated amount as lump sum.
This retirement scheme is managed and regulated by Pension Fund Regulatory and Development Authority (PFRDA).

Eligibility

To be eligible for the scheme, investors must be between 18 to 70 years of age. And everyone subscribing should comply with the KYC standards.

How to calculate NPS returns?

As we know, returns of the NPS scheme are linked to markets and depend on the performance of underlying investments or assets.
To calculate the NPS returns, you can use an online calculator. You will have to fill in all your details, such as monthly payments, your age, the type of scheme, and your expected interest rate of the scheme. The NPS calculator will be able to tell you the total corpus you'd be able to accumulate and the pension you'll be receiving upon maturity, i.e. post-retirement.
Let's understand it better with an example.
Let's say you are a 30-year-old individual interested in subscribing to the NPS scheme. You decide to invest ₹5,000 monthly and want to retire at the age of 60. Let's assume that the average rate of return of the scheme is 10%.
Now, by the time you turn 60, you'd have contributed around ₹18 lahks towards the scheme. Total interest earned at 10% average rate would be ₹94 lahks.
The total corpus generated would be somewhere around ₹1.1 crores.
Now, let's suppose that you want to withdraw 60% of the corpus at the start of retirement. The rest 40% would go towards annuities.
This means you'd withdraw around ₹68 lakhs, and your monthly pension would come out to be around ₹22,793 if we consider an annuity rate of 6%.

NPS returns

Here’s the range of returns given by the different NPS Accounts

NPS returns for Tier l Accounts

Asset class1 year returns5- year returns10-year returns
Equity4.93% - 7.02%10.82%-12%12.64 - 12.94%
Government Bonds2.43%- 3.08%7.63% - 8.65%8.27% - 8.60%
Corporate Bonds2.78% - 3.48%7.00% - 8.10 %8.51% - 9.01%
Alternative Assets4.45% - 8.85%6.40% - 9.04%NA

NPS returns for Tier 2 Accounts

Asset class1 year returns5-year returns10-year returns
Equity5.11% - 7.61%10.82%-11.94%12.69% - 13%
Corporate Bonds2.83%- 3.47%7.31% - 7.99%8.41%-8.90%
Government Bonds2.34% - 3.03%7.62% - 9.09%8.31% - 8.58%
Tax saving scheme3.25% - 6.86NANA

NPS taxation benefits

For employees' and their employers' contributions towards the scheme, a deduction of ₹1.5 lakhs can be claimed.
For salaried people: Under section 80CCD (1), salaried people can claim up to 10% of their salary. Additionally, ₹50,000 can be invested to claim tax deductions under section 80CCD (1B).
For self-employed individuals: Self-employed individuals can claim up to 20% of their gross incomes. A maximum of ₹1.5 lakhs is allowed for tax deduction under section 80CCD (1).
Additionally, ₹50,000 can be invested to claim tax deductions under section 80CCD (1B).

Benefits of the NPS scheme

  • Cost-effective: It is one of the most affordable schemes available to plan for retirement with low maintenance and administration charges.
  • Flexibility: NPS scheme offers investors flexibility in terms of the type of fund they wish to opt for.
  • Portability: Subscribers can contribute towards the scheme from anywhere in the country. No matter which POP-SP branch subscribers are registered with, contributions can be made through any of the POP-SPs. Online payment is also available.

Types of NPS accounts

There are two types of NPS accounts subscribers can pick. These are:
  • Tier 1 NPS account: It is the account mandatory to open for all the subscribers to the scheme. Withdrawals from the account can only be made per the scheme's rules. A minimum payment of ₹500 has to be made while opening the account, and ₹1000 must be contributed per annum. The lock-in period of this account is 60 years. The total tax exemption subscribers can get by subscribing to the scheme is ₹2,00,000 p.a. under sections 80C and 80CCD.
  • Tier 2 NPS account: This account is voluntary for subscribers to open. The government permits withdrawals from tier 2 accounts. A minimum payment of ₹1,000 is required to open the account. No tax benefits are available to NPS investors in this account. There is no lock-in period in the account. A subscriber can only open a tier 2 account once they have activated their tier 1 account.

Final words

NPS is a great scheme to subscribe to for individuals who are looking for an affordable option for retirement savings.
The NPS returns rate or returns from NPS schemes are linked to markets and are dependent on underlying assets or investments.
The information in this blog is for educational purposes. Hence, you must do thorough research and seek the assistance of an expert before investing.

Never miss a trading opportunity with Margin Trading Facility

Enjoy 2X leverage on over 900+ stocks

Upstox Margin Trading Facility
Apple Logo
Downloadlogo
iOS App
Google Play Logo
Downloadlogo
Android App

RELATED ARTICLES

GPF Rules (General Provident Fund Deposit) 2023 - Withdrawal & Nomination

Retirement planning constitutes an integral part of financial planning. Planning for retirement does not only ensure that your funds get sorted post-retirement but also ensures you fulfill your dreams, such as travelling around the world. Though the government of India backs several schemes, [Public Provident Fund (PPF)](https://upstox.com/saving-schemes/public-provident-fund-ppf-interest-rate/), [General Provident Fund(GPF)](https://upstox.com/saving-schemes/gpf-general-provident-fund-for-government-employees/) and Employees' Provident Fund(EPF) are the widely known ones. Today, we are going to focus on the General Provident Fund and its various rules you must know before subscribing to the scheme. In this blog, we will cover the following: - What is a GPF? - Eligibility rule for GPF - Nomination rule for GPF - Deposit rule for GPF - GPF interest rules - GPF rules for withdrawals - GPF advance rules - GPF taxation rules

Atal Pension Yojana (APY) 2023: Benefits, Login, Details, Schemes, & Registrations

Atal Pension Yojana was launched on 9 May 2015 to create a universal social security system for all Indians. With a focus on the needy, the underprivileged, and the unstructured sector workers, [Pension Fund Regulatory and Development Authority](https://upstox.com/saving-schemes/pension-fund-regulatory-and-development-authority-pfrda/), i.e. PFRDA, oversees APY. In this article, you will learn about the objectives, form download procedure, Atal Pension Yojana investment scheme, advantages of joining the Atal Pension Yojana scheme, benefits and characteristics, frequently asked questions, etc. Every bank account user between the ages of 18 and 40 is eligible for Atal Pension Yojana, and the amount varies according to the selected pension amount. With the caveat that beginning on 1 October 2022, any citizen who is or has ever paid income taxes is unable to join Atal Pension Yojana. The government would guarantee a minimal pension. This means that the Central Government would cover any shortfall if the contributions-based accumulated corpus generates a return on investment that is below expectations and insufficient to cover the minimum guaranteed pension. Alternatively, the subscribers would receive improved pensionary benefits if the returns on investments were higher.

NPS (Nation Pension Scheme) Interest Rates 2023

Proper retirement planning goes a long way to improving life after retirement. Financial security in your old age can be a lifesaver. With all of the inflation, healthcare and other costs will only go up in the future, and if you do not have a solid retirement plan, things can get complicated in your old age. Retirement can seem like a long way away for people in their 20s and 30s, who are probably in the beginning stages of their careers. However, starting early makes retirement planning a lot easier. After all, the best time to have started planning for your retirement was yesterday, and the next best time to do it is now. You can start by investing in a retirement plan or pension scheme, and there are many of both offered by various financial companies. One such scheme offered by the government of India that you can invest in is the National Pension Scheme or NPS.

What is EPF Form 11 - Download & How to Fill EPF Form 11 Online

The Government of India established the Employees' Provident Fund (EPF) as a social security program to assist people in saving money while working. Each month, the employee and the company make a small contribution to building up a sizable corpus for retirement. The EPF Form 11 assists the employer in determining whether the employee is currently enrolled in the EPF program or not. The employer is required to enrol an employee in EPF if their salary exceeds INR 15,000 and they work for a company with more than 20 employees. The employer must continue to fulfil their PF duties if the employee is already a member of the EPFO. Form 11 can automatically transfer the PF account and provides the employee's EPF history.