An essential aspect of financial planning is investing your money in instruments that guarantee steady returns and tax benefits. There are many investment instruments for you to choose from, including mutual funds, National Pension Scheme (NPS), Public Provident Fund (PPF), Fixed Deposits (FDs), etc. Among these, the National Pension Scheme is a great choice due to its distinct features, especially the attractive NPS returns.
This article compares NPS fund returns with other investment options to help you make informed financial decisions.
NPS is an ideal tool, capable of meeting the needs of different types of investors. It has the potential to deliver market-linked returns while mitigating risks. Here are the key features that result in impressive NPS returns.
NPS allocates your money into debt, equity, and government securities. It creates a balanced risk-return profile. Therefore, it is appropriate for both aggressive and conservative investors.
Market conditions directly influence returns in NPS. If the market is rising, NPS returns also increase. Thus, the instrument can deliver higher growth potential compared to fixed-income instruments, such as FDs and PPFs. NPS can allocate up to 75% of contributions to equity, which means your ability to generate returns increases even further.
Additional Read: How to Open NPS Account Online?
Seasoned professionals manage NPS funds. With their experience, they allocate assets optimally and ensure risk-adjusted returns. Investors can make informed decisions and maximize returns by monitoring the performance of NPS fund managers.
NPS is different from traditional savings schemes, such as PPF, Post Office Savings Account, Sukanya Samriddhi Yojana, National Savings Certificate, etc. It offers inflation-beating returns, retaining the investment’s purchasing power even during retirement.
The following table compares NPS against mutual funds, PPF, and FD on various parameters.
| Parameters | NPS | Mutual Funds | PPF | FD |
| Returns | 9-12% (based on historical performance) | 10-14% | Up to 7.1% (fixed) | 6-7% |
| Risk | Moderate, depends on market conditions | Moderate to high | Low, as the fund is government-backed | Low |
| Tax benefits | Deductions of up to Rs. 2 lakhs under Section 80C and 80CCD(1B) | Deductions up to Rs. 1.5 lakhs under Section 80C only on ELSS | Deductions of up to Rs. 1.5 lakhs under Section 80C | Taxes apply to interest earned |
| Liquidity | Investors can withdraw partially after 10 years | Varies from fund to fund | Investors can make partial withdrawals after 7 years | Withdrawal upon maturity; premature withdrawal is possible with penalties |
| Suitability | Best for long-term retirement savings | Best for wealth creation | Ideal for risk-averse investors | Ideal for short-term savings |
The table highlights how returns under NPS are one of the highest with moderate risk levels. The investment instrument is ideal for long-term retirement savings, especially for investors who prefer stable returns.
| Pension Fund | AUM (Rs. crores) | 1-year returns | 3-year returns | 5-year returns | 7-year returns | 10-year returns | Returns inception |
| Aditya Birla Sun Life Pension Management Ltd. | 806.16 | 32.94% | 19.30% | 19.32% | 15.30% | NA | 15.72% |
| Axis Pension Fund Management Ltd. | 1,784.39 | 34.68% | NA | NA | NA | NA | 25.21% |
| HDFC Pension Management Co. Ltd. | 44,892.03 | 33.27% | 18.96% | 19.74% | 15.57% | 14.26% | 16.46% |
| ICICI Prudential Pension Fund Management Co. Ltd. | 16,019.08 | 36.92% | 20.67% | 20.35% | 15.76% | 14.09% | 13.98% |
| Kotak Mahindra Pension Fund Ltd. | 2,511.05 | 35.35% | 20.39% | 20.21% | 15.57% | 14.11% | 13.33% |
| LIC Pension Fund Ltd. | 6,010.17 | 32.67% | 19.54% | 19.32% | 14.65% | 13.09% | 14.66% |
| Max Life Pension Fund Management Ltd. | 332.42 | 35.66% | NA | NA | NA | NA | 22.93% |
| SBI Pension Funds Pvt. Ltd. | 19,343.37 | 31.58% | 18.87% | 18.44% | 14.58% | 13.35% | 12.27% |
| Tata Pension Management Pvt. Ltd. | 1,160.75 | 40.61% | NA | NA | NA | NA | 27.13% |
| UTI Pension Fund Ltd. | 2,578.91 | 38.82% | 20.41% | 20.23% | 15.76% | 14.39% | 13.91% |
| DSP Pension Fund Management Pvt. Ltd. | 206.46 | NA | NA | NA | NA | NA | 24.70% |
The above table showcases the historical performance of NPS schemes that invest primarily in equity shares of listed companies. While their returns are high, their risk potential is also high.
| Pension Fund | AUM (Rs. Crores) | 1-year returns | 3-year returns | 5-year returns | 7-year returns | 10-year returns | Returns inception |
| Aditya Birla Sun Life Pension Management Ltd. | 386.99 | 7.94% | 6.24% | 7.60% | 8.13% | NA | 8.34% |
| Axis Pension Fund Management Ltd. | 1,018.15 | 7.67 | NA | NA | NA | NA | 7.74% |
| HDFC Pension Management Co. Ltd. | 16,998.332 | 8.17% | 6.36% | 7.83% | 7.73% | 9.02% | 9.26% |
| ICICI Prudential Pension Fund Management Co. Ltd. | 6,885.00 | 7.78% | 6.13% | 7.32% | 7.45% | 8.94% | 9.54% |
| Kotak Mahindra Pension Fund Ltd. | 925.07 | 7.93% | 6.10% | 6.78% | 6.83% | 8.45% | 9.24% |
| LIC Pension Fund Ltd. | 3,045.38 | 7.65% | 6.00% | 7.44% | 7.32% | 8.72% | 9.00% |
| Max Life Pension Fund Management Ltd. | 194.54 | 7.29% | NA | NA | NA | NA | 7.22% |
| SBI Pension Funds Pvt. Ltd. | 9,118.01 | 7.82% | 6.06% | 7.48% | 7.45% | 8.77% | 9.56% |
| Tata Pension Management Pvt. Ltd. | 499.98 | 7.86% | NA | NA | NA | NA | 6.99% |
| UTI Pension Fund Ltd. | 997.91 | 7.74% | 5.96% | 7.19% | 7.10% | 8.49% | 8.69% |
| DSP Pension Fund Management Pvt. Ltd. | 107.01 | NA | NA | NA | NA | NA | 4.85% |
This table explores the performance of investments in high-rated corporate bonds, debentures, and fixed-income securities. While the risk is moderate, the returns, too, are moderate.
| Pension Fund | AUM (Rs. Crores) | 1-year returns | 3-year returns | 5-year returns | 7-year returns | 10-year returns | Returns inception |
| Aditya Birla Sun Life Pension Management Ltd. | 715.27 | 9.38% | 7.06% | 7.23% | 7.48% | NA | 8.07% |
| Axis Pension Fund Management Ltd. | 1,409.19 | 9.37% | NA | NA | NA | NA | 9.23% |
| HDFC Pension Management Co. Ltd. | 28,297.67 | 9.62% | 6.82% | 7.23% | 7.65% | 9.12% | 9.13% |
| ICICI Prudential Pension Fund Management Co. Ltd. | 11,243.66 | 9.29% | 6.70% | 7.02% | 7.48% | 9.03% | 8.56% |
| Kotak Mahindra Pension Fund Ltd. | 1.634.54 | 9.58% | 7.02% | 7.16% | 7.53% | 9.12% | 8.56% |
| LIC Pension Fund Ltd. | 5791.05 | 9.28% | 6.91% | 7.14% | 7.99% | 9.60% | 9.85% |
| Max Life Pension Fund Management Ltd. | 416.15 | 9.07% | NA | NA | NA | NA | 9.37% |
| SBI Pension Funds Pvt. Ltd. | 18,842.57 | 9.49% | 6.86% | 7.13% | 7.56% | 9.14% | 9.12% |
| Tata Pension Management Pvt. Ltd. | 710.61 | 9.13% | NA | NA | NA | NA | 8.85% |
| UTI Pension Fund Ltd. | 1,852.34 | 9.71% | 7.13% | 7.06% | 7.35% | 8.85% | 8.34% |
| DSP Pension Fund Management Pvt. Ltd. | 160.44 | NA | NA | NA | NA | NA | 7.78% |
This table highlights the returns NPS Scheme G has historically generated. With exposure to Government of India bonds and related securities, the risk on these investments is the lowest. However, the return is also lower compared to corporate bonds and equities.
Diversifying your NPS investments can help maximize NPS returns. Here’s what you need to do.
Your individual risk appetite is key to understanding how you’ll divide your capital between equities and other safer asset classes like government securities or corporate bonds. Investors comfortable with market risk should consider a higher allocation to equity, whereas conservative investors must focus on government securities.
The investment horizon for young investors is longer, and they can overcome market fluctuations. Thus, they should allocate most of their contributions to equities. On the other hand, investors approaching retirement should focus on protecting their accumulated wealth by gradually shifting to more conservative asset classes, like government securities.
Portfolio diversification should be a regular activity, not a one-time effort. The performance of asset classes changes as market conditions change. Ensure you track your portfolio frequently and adjust accordingly. For instance, if changes in the equity market increase your equity allocation, rebalance your portfolio by switching funds into government securities or corporate bonds. The objective is to maintain your desired risk profile.
Section 80C and 80CCD(1B) of the Income Tax allow significant tax deductions on returns under NPS. Exhaust the entire Rs. 2 lakh limit to benefit from these tax-saving opportunities and maximize your NPS returns. Moreover, NPS offers market-linked, long-term growth. So, make the most of the power of compounding by staying invested in the long run.
A strategy focused on the right asset allocation, efficient tax planning, and careful fund management can help maximize NPS returns. Investors wanting to build a strong retirement fund should consider the market-linked returns and long-term growth potential NPS offers.
The following strategies can help maximize your NPS returns:
One of the best ways to enhance returns in NPS is to optimally divide your funds between equity, corporate bonds, and government securities. While younger investors should allocate more into equities, senior citizens and those nearing retirement should opt for safer debt instruments.
NPS aids in long-term wealth creation. Investors can benefit from the instrument’s compounding effect and market-linked growth by staying invested until retirement.
Another way to earn stable returns is by tracking the performance of NPS fund managers. Investors expecting higher returns should move on to a better-performing fund manager.
NPS’s return on investment increases when you leverage tax benefits. You can contribute more to NPS to claim deductions of up to Rs. 2 lakh under Section 80C and Section 80CCD(1B). This will boost net returns significantly.
The National Pension System (NPS) is a must-have pension scheme as it combines the unique benefits of tax efficiency, competitive returns, and cost-effectiveness. Many investors are attracted by the benefits of PPF and mutual funds, but NPS returns are stable, and the investment’s growth enables you to tackle inflation. As a result, it is best suited for long-term retirement planning.
Ready to see how NPS can work for you? Check out Tata Capital Moneyfy’s free NPS calculator to determine your potential returns.
NPS is ideally suited for someone seeking a retirement-oriented investment option with moderate risk. It offers benefits such as disciplined savings, long-term wealth creation, tax benefits u/s 80C and 80CCD (1B), and potentially higher returns than fixed interest generating instruments.
NPS returns depend on the choice of asset allocation between equities, corporate bonds, government securities, etc., along with the chosen fund manager’s strategy, market conditions, and investment duration. Higher equity exposure may yield better long-term returns, but it amplifies the risk in investments.
NPS has historically provided stable long-term returns, averaging 9% to 12% annually. Equity funds tend to yield potentially higher returns (10% to 12%) than corporate bonds (8% to 10%) and government securities (7% to 9%). Returns vary significantly by asset allocation, fund manager, and market performance.
NPS returns usually range between 9% and 12% per annum, which is significantly higher than the returns provided by Fixed Deposits (6% to 8%) but slightly lower than equity-based mutual funds (10% to 14%). However, such mutual funds are highly volatile and do not offer any tax benefits.
PPF (Public Provident Fund) and EPF (Employee Provident Fund) are more suited for conservative investors with annualized returns ranging between 7% and 8.5%. NPS, on the other hand, typically delivers 9% to 12% annualized returns with market-linked growth and additional tax-saving benefits.
The following tips can help you enhance your NPS returns:
Yes. You can switch your fund manager once during a financial year for your Tier I account and multiple times for your Tier II account. You can also adjust the asset allocation in your portfolio based on your age, risk appetite, and market conditions to optimize returns.
Yes. You can make partial withdrawals from your Tier I NPS account after three years of account opening. However, the withdrawal is limited to 25% of the total corpus and is permitted only for specific purposes such as medical treatment, a child’s education, marriage, home purchase/construction, etc.
No. NPS withdrawals are not entirely subject to taxation. You can withdraw up to 60% of the corpus at maturity, i.e., once you reach the age of 60 years. This withdrawal is completely tax-exempt. However, the remaining 40% is invested in an annuity scheme to provide a regular income, which is taxable as per your income tax slab.
Below are the applicable charges for investing in NPS:
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19 September 2025
7 mins read
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