NPS: National Pension Scheme returns, Benefits, Calculator, Features and Tax saving

What is NPS?

The NPS full form is the National Pension System. This scheme is helpful in post-retirement phase financial planning schemes. NPS subscriber age is 18-65 years.


NPS Calculator

Monthly Contribution
Expected Return
Interest Add
Current Age
Retirement Age
Maturity Value
% withdrawal
Annuity Expected Return
Withdrawable Amount
Pension per Month


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NPS: National Pension Scheme returns, Benefits, Calculator, Features and Tax saving

Why NPS is best?

  1. Retirement Age Planning and enjoy
  2. No Government Support at retirement in India
  3. Save Income tax up to 2 lakh per year under section 80C
NPS is regulated by PFRDA (Pension Fund Regulatory and Development Authority). PFRDA body created by the Government of India.

PFRDA roles and functions:

  1. Develop and Regulate pension fund.
  2. Protect the interest of NPS subscribers.
  3. Approval of pension fund managers

PFRDA body approves 7 pension fund managers as on 07-02-2020.

  • Pension Funds (PFs) for Government Sector
    1. LIC Pension Fund Limited
    2. SBI Pension Funds Pvt. Ltd
    3. UTI Retirement Solutions Ltd

  • Pension Funds (PFs) for Private Sector
    1. HDFC Pension Management Co. Ltd.
    2. ICICI Prudential Pension Fund Management Co. Ltd.
    3. Kotak Mahindra Pension Fund Ltd.
    4. LIC Pension Fund Ltd.
    5. SBI Pension Funds Pvt. Ltd.
    6. UTI Retirement Solutions Ltd.
    7. Birla Sun Life Pension Management Ltd

This National Pension System introduced by Government of India under PFRDA or Pension Fund Regulatory and Development Authority under the PFRDA Act 2013.


In this NPS scheme where NPS individual subscribers voluntarily contribute to a scheme scheme that is market-linked and managed by professional fund managers.



Where do subscribers of the NPS fund get invested?

NPS fund is invested in 4 Assets Classes as below
  1. E class (Equity = Stock Market)
  2. G class (Government Bond)
  3. C Class (Corporate Bond)
  4. A Class (Alternate Investment) e.g. Real estate, Infrastructure fund

Risk in Assets Classes

Assets Class Risk
Government Bond Low
Corporate Bond Moderate
Equity High
Alternate Fund Very High


Features of the National Pension System

  1. Liquidity and flexibility via two different account types.
  2. The flexibility of investment via two different Assets Allocation options.
  3. Option to make a partial withdrawal.

Two different account types in NPS.

The National Pension System allows individuals to make systematic investments via either of the following two accounts.
unique Permanent Retirement Account Number or PRAN issued to each subscriber.
  • Tier-1 account
  • Tier-2 account

What is the difference between tier 1 and tier 2 accounts?

In tier 1 accounnts withdrawal from funds are subject to specific restrictions. While in tier 2 accounts are voluntary accounts providing liquidity of funds via investments and withdrawals.
individuals can subscribe to the National Pensions Scheme with PFRDA-appointed intermediaries via the two accounts tier 1 and tier 2. These intermediaries can include –
  • Trustee banks
  • Custodians
  • CRA or Central Recordkeeping Agency
  • NPS trust
  • PoP or Points of Presence
  • Annuity Service Providers.

Differanace Between Tier-1 and Tier-2 Account
Tier-1 Tier-2
Eligibility Any Indian citizen between 18 & 65 years of age Only Tier 1 account holder open
Lock in period age 60 years No lock-in period
annual contributions in account 1 time in a year Not Mandatory
Minimum contribution 500 250
Income tax benefits under Section 80C up to Rs 1.5 lakh + under Section 80CCD (1B) up to Rs 50,000 No Tax benefits


How Asset Allocation Get Decided?

In NPS you can decide how much fund allocation in 4 type assets. subscribers have two choices to allocate your fund that is below.


  1. Active Choice
  2. In this type of investment choice, Subscriber freedom to actively decide as to how his / her contribution is to be invested, based on personal preference. Up to 50 years of age, the maximum permitted Equity Investment is 75% of the total asset allocation and this equity allocation is reduced to 50% when the subscriber age 60 years old. This can be done to reduce risk in the old age of the subscriber. Percentage contribution value cannot exceed 5% for Alternative Investment Funds.

    This assets allocation percentage can be changed twice in a year in the simple word... Subscriber can change assets allocation percentage two times in a year.

    Age Equity Allocation
    50 Years 75%
    51 Years 72.5%
    52 Years 70%
    53 Years 68.5%
    60 Years 50%


  3. Auto Choice
  4. In auto choice, the subscriber amount invested by 3 life cycles is below. Each cycle starts on maximum equity assets and equity allocates amount at high risk to low-risk Government bonds and Corporate bonds.

    • Aggressive Life Cycle Fund For High Risk
    • This Life cycle fund provides a cap of 75% of the total assets for Equity investment. The exposure in Equity Investments starts with 75% to 35 years of age and gradually reduces as per the age of the Subscriber. This scheme Equity investment reduces by 4%, 3% and 1% per year up to 45 years, 50 Year and 55 Year Respectively.

      Age Asset Class E
      Up to 35 Year 75%
      40 year 55%
      45 Year 35%
      50 year 20%
      55 year 15%


    • Moderate Life Cycle Fund for Moderate Risk
    • This Life cycle fund provides a cap of 50% of the total assets for Equity investment. The exposure in Equity Investments starts with 50% to 35 years of age and gradually reduces as per the age of the Subscriber.

      Age Equity Allotment
      Up to 35 Year 50%
      40 year 40%
      45 Year 30%
      50 Year 20%
      55 Year 10%


    • Conservative Life Cycle Fund for Low Risk
    • This Life cycle fund provides a cap of 25% of the total assets for Equity investment. The exposure in Equity Investments starts with 25% to 35 years of age and gradually reduces as per the age of the Subscriber.

      Age Equity Allotment
      Up to 35 Year 25%
      40 year 20%
      45 Year 15%
      50 Year 10%
      55 Year 5%


Option to make a partial withdrawal

National Pension Scheme is a retirement scheme so that you cannot withdraw before retirement age (60 years by Government of India). So that lock-in period is 60 years in NPS but all schemes have Premature withdrawal so NPS has also Premature withdrawal.

Can Subscriber Premature Withdrawal from NPS?

Yes,Premature Withdrawal is available after 3 years of regular investment. NPS allows maximum 3 partial withdrawals not exceeding 25% of the total contribution of subscriber-only (some NPS account companies also contribute in NPS). There should be a gap of five years between two withdrawals. The gap is reduced for medical emergencies. A member can make the first partial withdrawal only after 10 years of membership.

Withdrawal is allowed only against the specified reasons-
  • Higher education of children
  • Marriage of children
  • For the purchase/construction of a residential house or flat in his or her own name or in a joint name with his or her legally wedded spouse. In case, the Subscriber already owns either individually or in the joint name a residential house or flat, other than ancestral property, no Withdrawal under these regulations shall be permitted.
  • For treatment of specified illnesses - suffered by Subscriber, his legally wedded spouse, children including a legally adopted child and dependent parents.

Note:I remind again Withdrawal can happen maximum of three times during the entire tenure of subscription.

Can subscriber continue NPS before retirement?

Yes, A subscriber can continue to contribute to an NPS account beyond Retirement (Up to 70 years) and avail additional tax benefit on the contribution. The subscriber can defer his/her Withdrawal and stay invested in NPS up to 70 years of age. The subscriber can defer only lump-sum Withdrawal, defer the only Annuity or defer both lump sum as well as Annuity.

Can subscribers defer (start pension before retirement) NPS before retirement?

Yes, If you want to exit before 60 years, you can withdraw only 20 percent of the corpus. You must buy an annuity with the remaining 80 per cent of the corpus.

Can individual subscribers exit before retirement?

Yes,

Individual subscribers have the option to exit this plan before retirement or opt for superannuation.


Lump-sum withdrawal of up to 40% of an NPS corpus after a subscriber turns 60 is exempt from tax.


Example, up to 60 years of age if the total fund in the National Pension System amounts to Rs. 20 Lakh, a lump sum withdrawal of 40%, i.e., Rs.8 lakh will not attract any tax. Further, if you utilise the remaining 60% of funds for annuity purchase, the entire corpus will be tax-free. Only that, income generated from the annuity will be taxable.




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