NPS Interest Rates 2024

The National Pension System (NPS) is a government-backed pension scheme regulated by the Pension Fund Regulatory and Development Authority of India (PFRDA). Designed for post-retirement financial security, individuals contribute regularly during their working life. Besides offering financial protection, NPS provides tax benefits and an interest rate of 9%-12%. It stands as an appealing long-term investment, securing a comfortable retirement.

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What is the National Pension Scheme (NPS)?

The National Pension Scheme (NPS) is a government-backed long-term retirement savings plan introduced in India in 2004. It aims to provide individuals with a regular income post-retirement through market-linked investments. 

The Pension Fund Regulatory and Development Authority of India regulates the voluntary pension fund. The contributed amount by an individual to the NPS Account is invested in market-linked securities. The objective is to create long-term investment returns that are compounded annually.

Features of NPS

  • Individuals can start contributing with a minimum of Rs. 6,000 in a financial year.

  • This amount can be paid as a lump sum or as a monthly instalment of Rs. 500.

  • Currently, the NPS interest rate ranges between 9%-12%.

  • Any Indian citizen between the age group of 18-60 years can subscribe to the scheme. 

  • The maturity age of the scheme can be further extended up to 70 years.

  • The subscribers can make a partial withdrawal of up to 25% of the fund after the completion of 3 years of the scheme in case of a specific situation such as buying a home, treatment of any critical illness, or sponsoring a child’s higher education.

  • NPS offers you the flexibility to have 2 accounts: Tier 1 and Tier 2.

  • NPS Tier I account is focused on long-term retirement savings. Opening this account is mandatory to join the NPS scheme. 

  • It is difficult and conditional to withdraw funds from the Tier 1 account.

  • Tier 2 accounts allow customers to save for any emergency needs.

What is the NPS Interest Rate in 2024?

The returns or interest from the National Pension System depends on the contribution made towards the scheme and the asset classes chosen. The returns generated on NPS investment are market-linked, as the money is invested in equities and debt. Based on the asset class chosen by the subscriber and their contribution amount, the interest is applicable. 

Important Points about NPS Interest Rate

  • As compared to other investment options available in the market, NPS offers a profitable return and provides an opportunity to accumulate wealth in the long term.

  • The higher an individual contributes towards the scheme, the higher the retirement corpus they can create over a specific tenure. 

  • Moreover, the advantage of the power of compounding makes NPS a lucrative option for retirement planning.

The below table illustrates the individual returns for Tier 1 and Tier 2 Accounts: 

NPS Tier 1 Returns

Classes of Assets  Returns of 1 year (in %) Returns of 5 years Returns of 10 years
Corporate Bonds (Class C) 6.85-7.44% 7.49-8.51% 8.64%-9.15%
Equity (Class E) 23.36-26-74%%  15.22-16.94% 13.33-14.75%
Alternative Assets (Class A)  1.21-7.74% 5.15-8.74% -
Government Bonds (Class G) 7.69-8.40% 7.71-8.16% 9.07-9.92%

*Last updated as of Jan 19, 2024.

NPS Tier 2 Returns

Classes of Assets  Returns of 1 year (in %) Returns of 5 years (in %) Returns of 10 years (in %)
Corporate Bonds (Class C) 6.06-7.42% 7.71-8.43% 8.60-9.02%
Equity (Class E) 22.36-27.20% 15.29-16.80% 12.29-14.55%
Government Bonds (Class G) 7.28-8.35% 7.66-8.35% 9.10-9.94%

*Last updated as of Jan 19, 2024.

Calculation of NPS Interest Rate

NPS returns are influenced by the performance of underlying assets in the NPS fund, making them market-linked and compounded. Given the complexity of NPS returns calculation, it's advisable to utilise an online NPS calculator. Simply input your age, monthly investment, expected return on investment, and expected return from pension. 

Illustration to calculate NPS Interest 

Richa, aged 32, plans to invest ₹5,000 monthly in the NPS scheme with an anticipated 10% rate of return. Her goal is to retire at the age of 60. According to NPS regulations, 40% of the accumulated corpus is utilised to procure an annuity when she turns 60.

Total Investment: ₹16.8L

Returns Earned: ₹75.5L

Maturity Amount: ₹92.3L

Your Monthly Pension: ₹30,764

The subscriber can use the NPS calculator to evaluate the retirement corpus, interest earned on it, the amount used to purchase an annuity, and the expected monthly pension from an annuity.

Taxation on NPS Returns

Let us have a look at the tax benefits offered on the returns gained by the NPS interest rate:

  • The contribution made towards the NPS scheme is qualified for tax exemption under Section 80C of the Income Tax Act. 

  • The subscriber can claim a tax exemption up to a maximum of Rs. 1.5 lakhs in a financial year. 

  • The subscribers can also claim a tax exemption on investments up to Rs. 50,000 over and above the limit of Rs. 1.5 lakh in a financial year under Section 80CCD (1B) of the IT Act. 

  • Also, under Section 80CCD (2), the subscriber can claim an additional limit on the contribution of up to 10% of the basic salary of the employee made by the employer. 

  • However, the add-on deduction applies only to employees, and there is no upper limit on that.

In the financial year 2021-2022, the government revised the NPS scheme's taxation. The entire 60% of the withdrawal amount on maturity is entirely tax-exempted. Earlier, out of 60%, only 40% were tax exempted. The rest 20% was taxed as per the IT slab rate of the subscriber.

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Interest Rates of NPS from Top Pension Fund Companies

The below table illustrates the interest rates of the National Pension System from top pension fund managers: 

  1. ICICI Prudential Pension Fund Management Co. Ltd.

    Funds  Returns of 1 year (in %) Returns of 3 years  Returns of 5 years  Returns since Inception 
    Equities of Tier 1 26.74% 18.88% 16.62% 13.08%
    Government Bonds- Tier 1 8.12% 4.45% 7.71% 8.42%
    Corporate Bonds – Tier 1  7.46% 5.32% 9.12% 9.56%
    Alternative Assets – Tier 1  2.42% 5.06% 6.27% 6.40%
    Government Securities– Tier 2 8.05% 4.51% 7.10% 8.48%
    Equities of Tier 2 17.92% 9.74% 14.54% 10.24%
    Corporate Bonds – Tier 2 14% 9.83% 9.87% 10.49%
  2. LIC Pension Fund Limited

    Funds  Returns of 1 year (in %) Returns of 3 years  Returns of 5 years  Returns since Inception 
    Equities of Tier 1 15.33% 7.64% 13.11% 12.05%
    Government Securities- Tier 1 13.79% 12.70% 11.86% 11.78%
    Corporate Bonds – Tier 1  14.47% 10.05% 9.81% 10.54%
    Alternative Assets – Tier 1  9.67% 9.16% - 8.26%
    Equities of Tier 2 15.19% 7.54% 13.05% 9.47%
    Government Securities– Tier 2 13.27% 13.37% 12% 12.07%
    Corporate Bonds – Tier 2 16.36% 13.37% 12% 12.07%
  3. HDFC Pension Management Co. Ltd.

    Fund 1-year Returns(%) 3-year Returns(%) 5-year Returns(%) Returns Inception
    Tier I Equities 18.81% 10.69% 15.72% 14.96%
    Tier I Corporate Bonds 14.22% 10.36% 10.15% 10.71%
    Tier I Government Securities 14.26% 11.80% 10.88% 10.72%
    Tier I Alternative Assets 8.78% 8.90% NA 8.63%
    Tier II Equities 18.64% 10.59% 15.83% 12.72%
    Tier II Corporate Bonds 13.70% 10.24% 10.16% 9.79%
    Tier II Government Securities 13.38% 11.55% 10.73% 10.94%

Interest Rates of NPS for Tier 1 Accounts

The below table illustrates the interest rates of NPS Tier 1 top-performing equity pension fund managers in 2024-2025

Pension Fund Companies  Returns of 1 year (in %) Returns of 2 years (in %) Returns of 5 years (in %)
Reliance Pension Fund  9.15% 12.05% 10.32%
HDFC Pension Fund  9.56% 14.72% 11.90%
ICICI Pension Fund  9.30% 13.11% 11.12%
Kotak Mahindra Pension Fund  9.28% 13% 11.12%
UTI Retirement Solutions  8.77% 13.50% 11.85%
LIC Pension Fund  8.13% 11.86% 10.22%
Aditya Birla Pension Fund  7.12% - -
SBI Pension Fund  9.73% 13.49% 11.38%

Therefore, the top-performing NPS Tier-2 Equity Funds with the highest returns are as follows:

Term of the Plan (in Years) Name of the Pension Fund Highest Return (in %)
1-Year SBI Pension Fund 9.73% p.a.
3-Year UTI Retirement Solutions 13.50% p.a.
5-Year HDFC Pension Fund 11.90% p.a.

Interest Rates of NPS for Tier 2 Accounts

The below table illustrates the interest rates of NPS Tier 2 top-performing equity pension fund managers in 2024-2025.

Pension Fund Companies  Returns of 1 year (in %) Returns of 2 years (in %) Returns of 5 years (in %)
Reliance Pension Fund  8.94% 12.08% 10.32%
HDFC Pension Fund  9.47% 14.87% 11.50%
ICICI Pension Fund  9.32% 13.16% 11.14%
Kotak Mahindra Pension Fund  9.54% 13.03% 11.12%
UTI Retirement Solutions  9.39% 13.66% 11.96%
LIC Pension Fund  8.51% 11.74% 8.97%
Aditya Birla Pension Fund  6.61% - -
SBI Pension Fund  9.71% 13.50% 11.39%

Hence, the top-performing NPS Tier-2 Equity Funds and their highest returns are mentioned as follows:

Term of the Plan (in Years) Name of the Pension Fund Highest Return (in %)
1- Year SBI Pension Fund 9.71% p.a.
3- Year HDFC Pension Fund 14.87% p.a.
5- Year UTI Retirement Solutions 11.96% p.a.

Comparison between NPS vs. PPF Interest Rates

Based on the market trends from the past year, NPS exhibited annual returns ranging between 9-12% p.a., outperforming PPF which yielded returns of 7.10% p.a. Overall, NPS holds a competitive advantage as a market-linked pension scheme with higher returns.

Investment Fund Type Annual Interest Rates (In %)
National Pension Scheme (NPS) 9-12%
Public Provident Fund (PPF) 7.10%

To Sum It Up!

The National Pension System (NPS) is the best pension plan in India. It is a government-backed initiative for securing financial stability in retirement. With its attractive features such as tax benefits and a competitive interest rate of 9%-12%, NPS presents itself as a compelling long-term investment option. By providing a systematic and efficient way for individuals to build a retirement corpus, NPS contributes significantly to financial planning and security.

FAQ's

  • What is the expected rate of interest in NPS?

    9% to 12% p.a. historically, but it is market-linked so it can fluctuate.
  • Which bank gives the highest interest rate on NPS?

    The scheme itself doesn't offer an interest rate. The returns depend on the chosen funds' performance.
  • Which NPS gives the highest return?

    No single NPS consistently gives the highest returns, it depends on the chosen fund(s) and market conditions.
  • Is NPS interest compounded monthly or annually?

    Compounded annually, similar to other market-linked investments.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
+Returns Since Inception of LIC Growth Fund
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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