What kind of returns can I expect from NPS?

March 26, 2021

What kind of returns can I expect from NPS?

The National Pension System (NPS) is considered one of the most secure investment instruments for people looking at earning returns on investments. Though it offers lower returns than other investment instruments, it is a medium risk profile.

An important aspect of the NPS scheme is that you can choose from among 8 Pension Fund Managers. NPS includes 4 asset classes and you are required to decide the allocation of the investment you wish to make towards each of the asset classes. The 4 asset classes include equity, corporate bonds, government bonds and alternate assets.

Investors have gained high returns regardless of the asset class or Tier they have invested in. Read on to learn about the NPS returns earned till Jul 19, 2019 and get an idea of the NPS returns the last 10 years have yielded. This will also help you accurately assess NPS return rates in 2020.

  1. As of Jul 19, 2019, the average NPS returns Tier 1 (equity) was 3.6% for 1 year, 9.5% for 3 years, 8.74% for 5 years, and 10.67% since inception
  2. Average NPS returns Tier 1 (corporate bonds) was 13.59% for 1 year, 9% for 3 years, 10.34% for 5 years, and 10.31% since inception
  3. Average NPS returns Tier 1 (government bonds) was 20.28% for 1 year, 10.29% for 3 years, 11.56% for 5 years, and 10.15% since inception
  4. Average NPS returns Tier 1 (alternative assets) was 9.89% for 1 year, with 7.67% being average returns since inception

Returns on NPS are market linked, similar to mutual funds, and are also the reason there are no interest rates on NPS investments.

As seen above, the expected rate of return on NPS investment can become quite high, depending on the time period that you have invested for. NPS calculator is a tool that has become quite popular owing to its ability to near accurately estimate the returns that you are likely to earn over a period of time as expected rate of return on an NPS investment.

Through the NPS calculator, you can easily assess the amount you are likely to earn when the NPS corpus is realised at the time of retirement, i.e. at the age of 60 years. The NPS calculator is also a useful tool for estimating how much you are required to save in a periodic manner in order to avail high returns.

With your NPS login details, you can sign into the account portal at any time and check your investment status.

For using the NPS calculator, you need to input the following data:
1. Age of the subscriber

2. The estimated amount that the subscriber is willing to invest on a monthly basis

3. The returns that are expected through the NPS investment

4. As per the existing laws regarding NPS, the subscriber cannot withdraw the entire amount at the time of maturity. Instead, the subscriber must purchase annuities, which amount to at least 40% of the accumulated corpus, while the remaining 60% can be withdrawn. The expected annuity rate is another detail that must be entered into the NPS calculator in order to correctly estimate returns through NPS.

Once the NPS calculator has received the above mentioned details, it is able to calculate the following results:

  1. The total amount you have invested into your NPS Account
  2. The total corpus that is generated upon the subscriber’s retirement, based on the expected rate of interest
  3. The total amount that will be purchased as annuities at the time of maturity
  4. The total amount that can be withdrawn as a lump sum at the time of maturity
  5. Based on annuity purchase, the estimated pension that the subscriber will receive on a monthly basis is also calculated

In recent years, NPS has emerged as an investment instrument of choice for subscribers who wish to safely build up a corpus for their retirement. While NPS allows you to invest across a range of assets, there is a cap in terms of the exposure that the fund receives to equity shares which are considered riskier than other investment instruments and do not offer guaranteed returns.

NPS returns in the last 10 years have hovered around 8% to 10%, which has gone a significant way towards increasing the investor’s confidence in the NPS scheme details. Today, you can open an NPS Account online from the comfort of your home in less than half an hour. You will need to provide details such as your PAN, Aadhaar and mobile number, which will be authenticated through an OTP. Once your account is verified, you will receive a Permanent Retirement Account Number (PRAN), which you can use for your NPS login process.

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