NPS Interest Rates 2025

What is the NPS Interest Rate in 2025?

The returns from the NPS interest rates depend on the contribution made towards the National Pension Scheme and the asset classes chosen. The returns generated on NPS investment are market-linked, as the money is invested in equities and debt securities. Interest is calculated based on your chosen asset classes and the contribution amount.

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

Enter Your Age

Monthly Investment

₹

₹500 ₹10L

Enter Investment Per Month

Expected Return on Investment

%

5% 15%

Expected Return on Investment

Percentage of Corpus Allocated for Pension

%

40% 100%

Enter Corpus Percentage

Expected Return from Pension

%

5% 15%

Enter Annuity Return

₹0

Your Monthly Pension

View Plans

₹0

Your Monthly Pension

View Plans Your Pension Calculation

Your Pension Calculation

Total Investment

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

View Plans

NPS Tier 1 Returns

*Last updated as of April 2025.

NPS Tier 2 Interest Rate Returns

*Last updated as of April 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:

Asset Allocation Options:Two types of asset allocation options are available under the NPS:

• Active Choice: You decide the allocation between asset classes.
• Auto Choice: Allocation is done based on your age.

1. Active Choice

   The Active Choice option allows you to allocate your funds across various asset classes. However, equity (Asset Class E) investment is capped at 75% until the age of 50. After 51, the equity limit reduces gradually according to a set schedule, as shown in the table below:

   Age	Equity
   51	72.5
   52	70
   53	67.5
   54	65
   55	62.5
   56	60
   57	57.5
   58	55
   59	52.5
   60	50

   You can allocate up to 5% of your total funds to Alternative Investment Funds (AIFs), with no restrictions on other asset classes. For higher returns, a larger equity allocation is ideal, but it's important to balance this with personal risk tolerance.

2. Auto Choice

   In auto choice, the allocation depends on the lifecycle fund chosen. There are three types, each varying in risk:

   • Aggressive
   • Moderate
   • Conservative

   Each fund has a different asset allocation to match its risk level. As you age, the risk level decreases in all three funds.

   Aggressive Lifecycle Fund:

   If you are seeking higher returns, the aggressive lifecycle fund allocates as follows:

   Age	Equity (E)	Govt. Bonds (G)	Corporate Bonds (C)
   Up to 35 years	75%	15%	10%
   40 years	55%	30%	15%
   45 years	35%	45%	20%
   50 years	20%	60%	20%
   55 years	15%	75%	10%

   Moderate Lifecycle Fund:

   The moderate lifecycle fund allocation is as follows:

   Age	Equity (E)	Govt. Bonds (G)	Corporate Bonds (C)
   Up to 35 years	50%	20%	30%
   40 years	40%	35%	25%
   45 years	30%	50%	20%
   50 years	20%	65%	15%
   55 years	10%	80%	10%

   Conservative Lifecycle Fund:

   If you have a low-risk appetite, you might prefer the conservative lifecycle fund. The asset allocation for this is provided in the table below.

   Age	Equity (E)	Govt. Bonds (G)	Corporate Bonds (C)
   Up to 35 years	25%	30%	45%
   40 years	20%	45%	35%
   45 years	15%	60%	25%
   50 years	10%	75%	15%
   55 years	5%	90%	5%

   It is important to take note of the following:

   • Auto Choice bars investment in Alternative investments (asset class A).
   • NPS “interest” depends on the investment option and the type of fund that you have selected.
   • Different fund managers yield different returns. You can switch them for the Tier I and Tier II categories.
   • You have the option of changing your investments for both the Tier-I and the Tier-II accounts two times a year.
   • Monitor your fund's performance and gradually adjust it to meet your investment objective.

Calculation of NPS Interest Rate 2025

You can evaluate potential NPS returns by following the steps below:

1. Recognize No Fixed Rate: 

   Understand that the NPS (National Pension System) does not offer a guaranteed "interest rate". Your final returns are linked to how the market performs.

2. Identify Market Linkage: 

   Your contributions are invested in market-linked funds (equity, bonds, etc). They have a direct impact on your returns.

3. Consider Compounding: 

   Returns are usually compounded monthly, thus the possibility of exponential growth in the future.

4. Use an NPS Calculator:

   To get a projection of your potential returns, you can use any reliable online NPS calculator:

   • Access an online NPS calculator.
   • Enter your age and expected retirement age.
   • Enter the amount you invest each month.
   • Give an estimated annual return on your investments (this is mainly an assumption based on market expectations and past performances).
   • Optionally, enter an assumed rate of return on annuity period (post-retirement pension).

   The calculator will then display projected values like your total corpus and estimated monthly pension.

5. Understand Projections: 

   Remember that those are estimates based on what you assume and are not returns guaranteed. Future market performance can vary.

6. Review Fund Performance: 

   Analyse the historical performance of the various Pension Fund Managers and their schemes to guide your return expectations.

Illustration to Calculate NPS Interest

Let’s understand this better with an example.

Tina, aged 30, plans to retire at 60. She starts investing in the NPS with the following details:

• Monthly Contribution: ₹5,000
• Estimated NPS Interest Rate: 10%

After inputting these values into the NPS Calculator, the output is as follows:

• Total Investment: ₹18 lakhs
• Interest Earned: ₹98.4 lakhs
• Maturity Corpus: ₹1.16 crores
• Estimated Monthly Pension: ₹38,966
• Mandatory 40% Annuity Investment: ₹46,38,345

Note: As per NPS rules, a minimum of 40% of your accumulated funds must be used to buy an annuity at retirement.

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).

1. Section 80CCD(1): Ram’s Own Contribution

   • Eligible individuals: Salaried and Self-employed
   • Deduction limit:
     • For salaried individuals like Ram: Up to 10% of Basic + Dearness Allowance
     • For self-employed: Up to 20% of gross income
   • Maximum claimable amount: Part of the overall ₹1.5 lakh limit under Section 80CCD(1)

   Example:

   • Ram’s Basic Salary + Dearness Allowance = ₹14,00,000
   • 10% of ₹14,00,000 = ₹1,40,000
   • Ram can claim ₹1,40,000 under Section 80CCD(1)
   • This fits within the total ₹1.5 lakh cap, which includes LIC, ELSS, PPF, etc.

   Note: If Ram has already exhausted the ₹1.5 lakh limit on other investments, he can't use this NPS deduction unless he reduces those amounts.

2. Section 80CCD(1B): Additional Deduction for Ram

   • Eligible individuals: All NPS subscribers
   • Deduction allowed: Up to ₹50,000
   • Separate from: The ₹1.5 lakh limit under Section 80CCD(1)

   Example:

   • Ram already claimed ₹1.5 lakh through EPF, PPF, and LIC
   • He contributes an extra ₹50,000 to his NPS
   • This amount qualifies separately under Section 80CCD(1B)
   • Ram’s total deductions increase to ₹2 lakh

3. Section 80CCD(2): Ram’s Employer Contribution

   • Eligible individuals: Employees with employer contributions to NPS
   • Deduction limit:
     • Up to 10% of salary under the old tax regime
     • Up to 14% under the new tax regime
   • Separate from: The ₹1.5 lakh limit under Section 80CCD(1)

   Example:

   • Ram’s Basic Salary + Dearness Allowance = ₹11,00,000
   • His employer contributes ₹1,10,000 (10%) to his NPS
   • Ram can claim the full ₹90,000 as a deduction under Section 80CCD(2)

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

NPS Rate of Interest from Top Equity Pension Fund Companies - Tier 1 Account in 2025

Below is a comparative table showing the NPS interest rates 2025 for top-performing equity pension fund managers under Tier-I Accounts, based on their 10-year returns:

Top-Performing NPS Tier-I Scheme E Returns for 2025 

Last updated as of May 2025.

Top-Performing NPS Tier-I Scheme C Returns for 2025 

Last updated as of May 2025.

Top-Performing NPS Tier-I Scheme G Returns for 2025 

Last updated as of May 2025.

Top-Performing NPS Tier-I Scheme A Returns for 2025 

Last updated as of May 2025.

NPS Rate of Interest from Top Equity Pension Fund Companies - Tier 2 Account in 2025

The table below illustrates the interest rates of NPS Tier 2 top-performing equity pension fund managers in 2025, which are sorted as per 10-year returns:

Top-Performing NPS Tier-II Scheme E Returns for 2025 

Last updated as of May 2025.

Top-Performing NPS Tier-II Scheme C Returns for 2025 

Last updated as of May 2025.

Top-Performing NPS Scheme Tier-II Composite G Returns for 2025 

Last updated as of May 2025.

Top-Performing NPS Tier-II Scheme Returns for 2025 

Last updated as of May 2025.

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

Discover the key elements that influence the National Pension Scheme (NPS) return rate in 2025:

• Equity and Debt Market Performance: The performance of equity and bond markets significantly impacts your NPS returns. Strong equity trends can increase gains on the equity side, while changes in bond yields affect the debt component.
• Pension Fund Manager (PFM) Expertise: Returns depend greatly on the decisions made by your chosen Pension Fund Manager (PFM). Their strategy and experience play a pivotal role in optimising your earnings.
• Asset Allocation Choices: Your decision to divide funds among equities, corporate bonds, and government securities directly influences your outcome. A well-thought-out allocation is key to balancing risk and reward.
• Government Bond Yield Movements: A substantial portion of NPS investments goes into government bonds. So, fluctuations in these yields can alter your overall NPS interest rate from the debt section of the portfolio.
• Global and Domestic Economic Conditions: Broader economic factors, such as GDP growth, inflation, and international trends, can shift market sentiment and affect the performance of underlying investments.
• Contribution Consistency and Investment Tenure: Regular contributions are useful for rupee cost averaging and gains from long-term 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.