NPS Interest Rates 2025

What is the NPS Interest Rate in 2025?

The National Pension System (NPS) does not offer a fixed interest rate like traditional fixed deposits or savings schemes. Instead, the returns from NPS are market-linked, meaning the growth of your invested amount depends on the performance of the underlying assets, which include equities, government bonds, and corporate debt funds. Because of this, the interest rate or returns from NPS are variable and fluctuate with market conditions.

Historically, NPS returns have ranged between approximately 9% and 12% per annum over the past decade, depending on the fund manager’s performance and asset allocation choices. These returns are compounded monthly, allowing your retirement corpus to potentially grow significantly over time through the power of compounding.

The following tables illustrate the individual NPS Tier 1 and NPS Tier 2 interest rate returns:

NPS Calculator

Your Age

Years

18 Years 59 Years

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Monthly Investment

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₹500 ₹10L

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Expected Return on Investment

%

5% 15%

Expected Return on Investment

Percentage of Corpus Allocated for Pension

%

40% 100%

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Expected Return from Pension

%

5% 15%

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Returns Earned

Maturity Amount

Maturity Amount split (Lumpsum & Pension)

60%

Lumpsum Amount

At the age of 60 Yrs

40%

Pension Wealth

At the age of 60 Yrs

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NPS Tier 1 Returns

*Last updated as of July 2025.

NPS Tier 2 Interest Rate Returns

*Last updated as of July 2025.

Important Points about NPS Interest Rate:

• Currently, the average NPS interest rate for the last 10 years ranges between 9%-12% p.a.
• Compared to traditional options, NPS has historically generated higher long-term wealth creation potential.
• The higher you contribute towards the scheme, the higher the retirement corpus you can create over a specific tenure.
• Moreover, the advantage of compounding makes NPS a lucrative option for retirement planning.

Types of Asset Allocation for NPS Interest Rates

When investing in the National Pension Scheme (NPS), the type of asset allocation you select directly influences the NPS interest rates you receive. Here's a breakdown of the primary asset classes available:

How to Choose Asset Allocation

• Active Choice: Pick your own mix. Equity is allowed up to 75% until age 50, then it reduces yearly, capping at 50% by age 60. Up to 5% can go into alternative assets.

The following table clarifies the maximum allowed equity allocation by age:

Additionally, individuals may choose to allocate up to 5% of their total funds towards Alternative Investment Funds (AIFs). There are no other restrictions on allocations to other asset classes.

Investors with a higher risk appetite aiming for greater long-term returns may opt for a higher equity allocation, but should always balance it with their risk tolerance and investment horizon.

• Auto Choice: Allocation changes with age. Choose a risk level-Aggressive, Moderate, or Conservative and then the allocation auto-adjusts.

Auto Choice Fund Splits

• E = Equity, G = Govt Bonds, C = Corporate Bonds
• Auto Choice doesn't allow alternative assets.
• Your returns and risks depend on your chosen option and fund type.

Calculation of NPS Interest Rate 2025

Assume you are 34 years old and you decide to contribute ₹3,000 monthly to your NPS account until you retire at age 60. Assume an expected annual return of 10%.

• Total investment period: 26 years
• Total principal invested: ₹3,000 × 12 × 26 = ₹9,36,000
• Expected corpus at retirement (with compounding returns): Approximately ₹44.35 lakh

You can use an NPS calculator by entering your age, retirement age, monthly contribution, and expected return rate. The calculator estimates your total corpus and potential monthly pension based on these inputs. This helps you plan your retirement savings effectively.

For example, with the above inputs, your estimated retirement corpus would be around ₹44.35 lakh, which you can then use to purchase an annuity for a steady post-retirement income.

Tax Benefits for NPS Contributions

NPS follows a taxation policy often referred to as Exempt-Exempt-Taxed (EET). Let us have a look at the tax benefits offered by the NPS interest rate 2025. These are categorized under 3 sections: 80CCD(1), 80CCD(1B), and 80CCD(2).

Section 80CCD(1):

• Deduction available for individual’s own contribution to NPS.
• Maximum deduction limit is Rs. 1.5 lakh.
• For salaried employees, deduction is limited to 10% of salary (Basic + DA).
• For self-employed individuals, deduction is up to 20% of gross total income.
• The Rs. 1.5 lakh limit is part of the overall limit under Section 80CCE.
• Applies to both salaried and self-employed individuals.

Section 80CCD(1B):

• Additional exclusive deduction for contributions in NPS Tier I account.
• Maximum deduction limit is Rs. 50,000 over and above the Rs. 1.5 lakh limit under Section 80C/80CCD(1).
• Available only to NPS subscribers.
• This deduction is not part of the Rs. 1.5 lakh limit.
• Applicable only under the old tax regime.

Section 80CCD(2):

• Deduction for employer’s contribution to employee’s NPS account.
• For government employees, maximum allowed is 14% of salary (Basic + DA).
• For other salaried employees, allowed up to 10% of salary (Basic + DA).
• Deduction limit is over and above the Rs. 1.5 lakh limit under Section 80C and Rs. 50,000 under 80CCD(1B).
• Applies only to salaried employees, not to self-employed.

Key Points for 2025:

The following is the 2025 EET structure of the taxation of NPS:

• Sections (80CCD), (80CCD) (1B), and (80CCD) (2) continue with the same deduction limits as in previous years.
• Tax-free pension wealth accumulation is still in place.
• Annuity purchase requirements and taxation rules remain unchanged.
• The Union Budget 2025 has not introduced significant changes to the NPS taxation structure.
• Under the new tax regime, individuals earning up to ₹12 lakh may not have to pay any tax; this indirectly impacts NPS tax planning for contributors.
• The NPS Vatsalya scheme (a child-focused pension initiative) is eligible for an additional ₹50,000 deduction under section 80CCD(1B), in addition to the ₹1.5 lakh under section 80C.

11 Pension Fund Managers under the NPS Scheme

Under the National Pension Scheme (NPS) scheme, there are eleven Pension Fund Managers (PFMs) you can choose from:

• HDFC Pension Management Company Ltd.
• ICICI Prudential Pension Fund Management Company Ltd.
• Kotak Mahindra Pension Fund Ltd.
• LIC Pension Fund Ltd.
• SBI Pension Funds Pvt. Ltd.
• UTI Retirement Solutions Ltd.
• Aditya Birla Sun Life Pension Management Ltd.
• Tata Pension Management Private Limited
• Max Life Pension Fund Management Ltd.
• Axis Pension Fund Management Ltd.
• DSP Pension Fund Managers Private Limited

Comparison between NPS vs. Pension Plans vs. PPF Interest Rates

Based on the market trends observed over the past year, NPS scheme interest rate returns range between 9-12% p.a., outperforming PPF, which delivered 7.10% p.a. in 2025. Overall, NPS holds a competitive advantage as a market-linked pension scheme with higher returns.

Factors Affecting NPS Return Rate 2025

• Market Performance: Your returns rise or fall with how equity and debt markets perform. Strong stocks boost equity gains, while bond yield changes impact the debt side.
• Fund Manager’s Expertise: The way your Pension Fund Manager plans and manages investments plays a big role in your returns.
• Asset Allocation: How you split money between equities, corporate bonds, and government securities decides your risk-reward balance.
• Government Bonds: Since a big part of NPS goes into govt. bonds, yield fluctuations can impact your overall return.
• Economic Conditions: Inflation, GDP growth, and global trends also shape market performance.
• Consistency & Tenure: Regular contributions and staying invested longer help with cost averaging and benefiting from market cycles.

Wrapping Up

Choosing the right asset allocation and regularly reviewing your pension fund's performance can significantly influence your retirement savings. With a transparent structure, flexibility in fund choices, and structured tax incentives, NPS continues to serve as a practical tool for long-term retirement planning in 2025. Align your portfolio with your risk tolerance to get the most out of this market-linked scheme.