The National Pension System (NPS) is a government-supported small savings scheme for retirement. NPS offers a Tier 1 and Tier 2 account for pension and regular investments for wealth creation, respectively, and is open to all resident and non-resident Indian citizens (NRIs). However, one can only open a Tier 2 account if they have opened a Tier 1 account because the primary purpose of NPS is to provide monthly pensions in old age. The NPS subscribers can also choose the auto or the active option for investing and the fund manager.

How Much Return Does NPS Give?

NPS is a market-linked savings scheme, so the returns are based on the market performance of the assets in the portfolio. To preempt certain market risks, NPS pension fund managers well-diversify their portfolios to ensure their value does not nosedive even if some assets do not perform in a particular period or capitalise on the performing assets when a specific sector or sectors do well. However, if you have selected the auto option, as the name suggests, the portfolio will move as per a pre-determined path based on the selection of your plan and age and is cost-free. But if you have opted for the active option, fund managers will come into the picture and manage the assets to optimise your returns for a small fee.

Also READ: PFRDA Eyes A New Balanced Life Cycle Fund For NPS: How It Can Help Build A Bigger Retirement Corpus

For example, let’s consider the performance of the NPS Scheme E in Tier 1; Scheme E is an asset class in NPS that primarily invests in the equity market instruments.

One-Year Performance of NPS Scheme E

Of the 10 NPS pension fund managers, the TATA pension fund gave the highest one-year returns at 42.50 per cent, followed by UTI Retirement Solutions Ltd at 40.70 per cent and ICICI pension fund at 39.35 per cent as of June 25, 2024. Other star performers included Kotak and Max Life at 37.38 per cent and 36.75 per cent, respectively, and LIC and HDFC tied at 35.16 per cent.

Five-Year Performance of NPS Scheme E

The five-year returns looked more modest. ICICI pension fund topped the list for this time bracket at 18.35 per cent, followed by UTI at 18.32 per cent and Kotak at 18.14 per cent. Other notable performers were HDFC, BIRLA, and LIC at 17.83 per cent, 17.37 per cent, and 17.33 per cent, respectively. The data shows that all 10 fund managers have a consistent performance.

Also READ: NPS, APY Members Get Dozens Of User-Friendly CRA Functionalities In Last 2 Qtrs: Learn More

NPS Asset Classes

NPS asset classes include equities, corporate debts, government securities and alternative investment funds. Their allocations mainly vary based on the subscriber’s age, particularly equity assets, which progressively reduce with age, specifically at 25, 35, 55, etc.

Finally, NPS is a great financial tool for retirement planning. It allows you to build a significant corpus, particularly if you start investing early. Additionally, it has a Tier 2 account that functions like a regular investment vehicle and provides market-linked returns, an additional investment avenue for those with other major financial goals to achieve. NPS contributions also attract tax benefits up to Rs 1.5 lakh under Section 80CCD of the Income Tax Act and an additional deduction of RS 50,000 under Section 80CCD (1B).