What is National Pension Scheme in India (NPS)

Regardless of how much one earns; all individuals try and create a pool of savings for their retirement. The government tries to promote this by adopting various measures like compulsory deduction of PF and EPF, encouraging savings by allowing tax exemptions or introducing schemes like National Pension Scheme 2012

Not many people in India know what is NPS?

National Pension Scheme in India (NPS Scheme) is amongst many investment options that are promoted (but not so well know so far) by the government of India but there is a major difference between NPS scheme  and other government scheme. National Pension Scheme website details are https://www.npscra.nsdl.co.in/

Unlike most government schemes where you get guaranteed returns NPS returns will depend on the efficiency those managing it. So is it a government promoted mutual fund? Read on to understand how the scheme works

National Pension Scheme India 2012

National Pension Scheme 2012 in India

National Pension Scheme details are mentioned below:

  • Individuals between the age of 18 and 60 years are eligible to apply for NPS account
  • A Tier I account where contributions are made and withdrawals are not permissible
  • Later Tier II account can be opened from where withdrawals can be made
  • There are 22 registered Points of Presence (PoP) (across the country) which serve as customer service centers.  A few banks and financial institutions have been designated to do so.
  • Once you approach the PoP and complete the formalities you will be registered with the CRA (Central Recordkeeping Agency) and will be issued Permanent Retirement Account Number (PRAN).
  • NPS form is available from PFRDA website i.e www.pfrda.org.in
  • There is no cap on the maximum amount that a person can invest; the minimum investment size is Rs. 500/month or Rs. 6000 annually.
  • Fund management charges are almost negligible at 0.0009% and there are some other costs which are quite low as compared to a mutual fund
  • Other National Pension Scheme details includes that you could choose from a list of six fund managers which are State Bank of India, UTI, ICICI Prudential, Kotak Mahindra, IDFC and Reliance.
  • The investor also has the option to invest in three different investment styles namely i.e high risk, medium risk and low risk. There is no cap on the amount you invest in low risk and medium risk fund styles, but you can invest only 50% of your fund corpus in high risk fund style. Further to your knowledge, the high risk investment option invest upto 50% in equity linked instruments or index funds which replicate Sensex
  • There are two options available in NPS account i.e “Auto Choice Option” and “Active Choice Option”. If you are exercising the first option, the money of the investor would be invested in various asset classes as per the investor’s age. If you select the active option, you are required to select one of three investment styles mentioned above

NPS – Swavalamban Scheme

Swavalamban scheme under NPS was launched in September, 2010 under which the Central Government will contribute Rs 1000 per year to each NPS account opened in financial year 2010-11 or in the next three years i.e 2011-12, 2012-13 and financial year 2013-14. Also adding to it, all NPS account opened in 2009-10 will also be eligible under Swavalamban scheme. The eligibility criteria for this scheme is that the investor must contribute a minimum of Rs 1000 and a maximum of Rs 6000 to NPS account per year.

Withdrawals in NPS Account Post and Pre Retirement

If you are aged less than 60 – You are required to invest a minimum of 80% of your pension money accumulated to purchase a life annuity from IRDA. You may withdraw remaining 20% of your amount.

On attaining the age of 60 – You are required to invest a minimum of 40% of your accumulated wealth to purchase a life annuity from IRDA. You may withdraw the remaining amount in a lump sum way or in a phased manner till the age of 70

Death of Investor – In such a case the nominee of the investor can withdraw 100% of the wealth accumulated in the NPS account

Is NPS Scheme a Mutual Fund?

The answer is yes and no? It is like a mutual fund  basic philosophy of investment (where the pooled money is invested in different options) and there are professionals to manage of your money yet the scheme is very different operationally.

First let us understand how is NPS like a mutual fund; first things first the returns are not guaranteed just like in a Mutual Fund.  Mutual fund provide an option where in you could invest in equity or debt instruments and also in different company stocks indirectly; NPS allows you to do the same.

Now for the differences: If you choose an Infrastructure mutual fund then all your money gets invested in stocks of infrastructure companies. If you choose a balanced fund then you get a mix of debt and equity but the proportion is decided by the fund manager which means that you have no say in it. So in case after some years you want to change your mix of investment you cannot do so. Well the NPS scheme gives you a choice to do so; the investor can choose a mix of different type of asset classes and can also change it as time goes by.

You can create your own portfolio by choosing between Equity(E) which is high risk and high return, fixed income instruments( C)  that offer medium returns at medium risk and pure debt instruments (G) with have almost no risk and offer lower returns. Since the idea is to promote stability post retirement the government has decided the equity limit has 50% in any portfolio. This aspect also differentiates it from a mutual fund where if you want all your money can be invested in equity.

Currently the equity part goes to index funds; the fixed income portion constitutes liquid funds, fixed deposits, infrastructure bonds and corporate debt instruments. Pure debt options are central government securities.

Another interesting aspect of the NPS pension fund is that you can change this mix as your age progresses. Just consider this example; Ashish starts the NPS investment at 25 and below is an illustration of how he varies the portfolio mix depending on his age

When Ashish is younger his risk taking capacity is higher and he would like to invest more in Equity and create wealth. As his age progresses he moves away from equity to safer options but does not do away with equity completely. This is just for example sakes many people might want to completely avoid equity by the time they turn 55.

In case the investor does not choose an investment mix himself/herself then the money is invested as per the default option created by the government. This default option has been designed keeping in mind the individual’s risk taking capacity at various stages in life. At the age of 18 the default option will invest 50% of the funds in equity, 30% in fixed income instruments and 20% in pure debt instruments. This remains static till the person turns 36 after which the equity and fixed income contribution decreases and pure debt increases. When the person reaches 55 then  80% will be equity and 10% each for rest of the two.

As stated above there are six fund manager to choose from so if you are not happy with one you could switch to another fund manager unlike a mutual fund where you will have to exit the fund in case you are unhappy which would mean more charges and more formalities.

All about PPF

Performance of NPS

Though the scheme is not very old and judging it will be a little premature however certain things can be concluded from its performance in the last few years.

  • Due to the low fund management cost banks etc are not pushing it.
  • All funds performed much lower as compared to their benchmark in the Equity allocation segment.
  • In the C and G options the performance of all funds was way above the benchmark.
  • For an aggressive investor the NPS will not be a good option as the low return on equity lowered the overall returns but for a conservative or balanced investment it is a good option.

Though not advertised aggressively the NPS pension fund scheme is gaining momentum albeit a little slowly. The NPS scheme despite its differences is pitched against the mutual funds for comparison. If you are looking at investing in a niche fund like like infrastructure, IT or gold gold ETFs or you are an aggressive investor then this scheme is not for you. But for a safe kind of player National Pension Scheme in India 2012 is an option worth exploring due to its low charges and the government backing

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  1. Siva Mohan says

    Hi Nidhi,

    Great article.. have few queries..

    1. which Tax saving section does this come under?
    2. what is the max limit for an year?

    Siva Mohan

    • Nine Million Dollars says

      Hi Siva Mohan

      1. NPS comes under Section 80CCD of Income Tax Act
      2. You can avail a max deduction of upto 10% of your basic salary. On wikipedia, it is written you can avail a max tax deduction of Rs 100000 including Section 80c Deductions. But as far as the latest tax rules and articles on rediff are concerened, the tax deduction under NPS is over and above the deduction taken under Sec 80c

      Nine Million Dollars

  2. Nidhi says

    Thanks for your insights Nine Million Dollars…
    Siva would just like to add that at the time of withdrawal the lumpsum would be taxable as per the individual’s tax slab.

    • Nine Million Dollars says

      Hi NIdhi

      As per the latest DTC code, the income received at the end of the tenure of NPS is totally tax free.

      Nine Million Dollars

  3. Hanumantharao says

    Is this only for those servants (government) who are into service prior to 2005 or any one can invest

    • Nine Million Dollars says

      Hello Mr. Hanumantharao,

      NPS is for any person between the age of 18 to 60. You are required to make your first contribution at the time of registration

      Nine Million Dollars

  4. Shailendra says

    Hello, Nidhi
    I would like to ask a question that NPS is compulsory for Govt. employee or optional for him. How to get information about one’s NPS account and access of it if government is making deduction in the head of NPS from the salary. What are the particulars which are required to access the deatils of NPS like PF or ESI?

    • Nine Million Dollars says

      Hi Shailendra

      NPS is compulsory for Central Govt employees. However state govt employees can stay away from NPS scheme. It is a voluntary scheme for employees of private companies
      You can claim a tax deuction of max of 10% of the basic salary. This is over and above the 80c deductions of Rs 1,00,000. You can check your salary slip or ask your HR Professional about the details of NPS deduction from the salary

      Nine Million Dollars

  5. ch jayakrishna says

    now my age is 25

    if i invest 12,000 per annum, how much i can withdraw when i attain the age of 60, under national pension fund scheme introduced by government of India

    please suggest me

    • Nine Million Dollars says

      Hi Jaya,

      Before investing in NPS, I want to make you sure that NPS doesnt carry any fixed or guaranteed returns like PPF or like Fixed Deposit scheme (FD). It is more of like a mutual fund, where in you have choice to invest in three different fund styles, aggressive, moderate and conservative portfolio. You can expect
      1. Total Investment of Rs 1000 per month for 35 yrs (4,20,000) to become 22.5 Lakhs at age of 60 assuming 8% returns from conservative fund
      2. Rs 4,20,000 invested to become 37.5 Lakhs at age of 60 assuming 10% returns from moderate fund portfolio
      3. Amount to become 64 Lakhs by assuming 12% returns from aggressive portfolio

      Nine Million Dollars

        • Nine Million Dollars says


          Yes if we consider the inflation rate which is 7% at the moment, no fixed return investment or NPS conservative portfolio can help you in making long term wealth

          Anyways thanks for visiting blog and commenting!!!

  6. Vijay says

    Hi Nidhi,

    Very well written, clarifying most of the questions. But the fact there is we may not assume % of returns as we are allocated NAVs, though conservatively.

  7. shahina says


    my company is private & don’t provide any EPF facility. so can I start saving in the PPF myself. As my salary is beyond 10,000,
    so what next should I do?

        • Nine Million Dollars says

          Hi Shahina

          You can open NPS account either at CAMS office in your city or with ICICI Direct (stock broking house). There are some banks also who offer NPS account but not many bank employees know about the concept of National Pension Scheme


  8. raj says

    sir my age is 30 now

    sir i am a govt employee and i invest 30,000 +30000(govt share)=60000 per annum, how much i can withdraw when i attain the age of 60, under national pension fund scheme introduced by government of India

    please suggest me

    • Nine Million Dollars says

      You can withdraw 60% of the wealth accumulates at the age of 60, remaining 40% has to be utilised in purchasing a life annuity

      Nine Million Dollars

  9. bobby says

    dear sir
    i am 30 years old
    I am a govt employee contributing Rs. 2800 +2800(govt)=5600/- per month to nps.
    what amount will i get at time of retirement?
    How much pension i will get if i withdraw 60% of my amount on retirement

    • Nine Million Dollars says

      Hi Bobby

      Yes you can withdraw 60% at the time of retirement, rest 40% to be invested in life insurance annuity. For getting corpus on retirement, we need to know in which fund style have you invested e,c OR G

  10. R L KAURA says

    The above article provides a good insight into the NPS. Have a few questions –
    1. If a person is covered under EPF scheme can he/ she join NPS?.
    2. If yes, will it be beneficial or effect his/her entitlement at retirement?
    3. Can one plan to invest more than Rs.1000 Per month to the NPS- Probably yes?
    R L Kaura

    • Nine Million Dollars says

      Hi Mr. Kaura

      1. Yes, you can invest in both EPF and NPS. You may ask your employer to make certain comtributions in NPS(may be by reducing your take home salary) which would help you avail additional tax deduction under sec 80ccd
      2. The main problem in NPS is that in Tier 1, your money gets locked till retirement. After that you have to invest 40% of amount accumulated in purchasing life annuities.
      3. You have to make a minimum contribution of Rs 500 to National Pension Scheme and a minimum of one contribution per year


      Nine Million Dollars

  11. Tariq Ahmad says

    I hv GPF account, am i eligible to get the benefit of the Swavalamban scheme in NPS, if i invest 12000 per annum in NPS

  12. SUDHA.V says

    Dear sir,

    I have NPS in Kotak Mahindra Bank, now I want to transfer these NPS to ICICI BAnk , is it possible , If possible please tell me the procedure how to transfer


  13. Bhaskar says

    Can u pl enlighten me on the following?
    a)Suppose the contribution is @Rs 6000 annually for 20 yrs and accumulated Rs 120000. at 60 yrs and the scheme is matured. Then at the end of scheme how much do u get with say av 9%?
    b) what is the meaning 40% compulsory purchase of Life insurance annuity.

    • Nine Million Dollars says

      Hi Bhaskar
      You would get 40 Lakhs after 20 years after I have made calculations @ 9%.
      Secondly, you have to purchase a life annuity means you would get a series of future payments against the one time payment who would make to the financial institution i.e insurance company
      Nine Million Dollars

  14. Ashok says

    Dear Nine Million Dollars,

    I am working in private company and I have EPF account , Kindly confirm can i invest into NPS. Please also suggest can i get tax exemption.


    • Nine Million Dollars says

      You can invest in NPs and a avail a tax deduction on Sec 80ccd on 10% of basic salary. This is over and above 80c deductions

  15. RITU SHARMA says

    I have recently changed my job and have a balance in my PF account in the previous organization.I worked for 3 years in the previous organization. My new organization follows NPS.
    Can i transfer the balance from my PF account in the previous organization to the NPS account in my new organization.

    • Nine Million Dollars says

      Hi Ritu Sharma
      No you cant transfer PF balance to NPS account. And you may have to withdraw the previous PF balance and that may become taxable

  16. shantanu says

    Dear sir,

    I have recently applied for NPS in Kotak Mahindra Bank, Is it possible to pay contribution to NPS acount using Kotak Bank netbanking ?

    • Nine Million Dollars says

      Hi Shantanu
      If I am not wrong this online transfer to NPS account is possible only with SBI Bank as of now. But soon should be open to all banks

  17. S.N.SHARMA says

    Dear Sir
    I am working in private company as a Personnal Manager and I have EPF Scheme for Company as per EPF Act, Kindly confirm can i Change into NPS. Please also suggest can i get exemption from EPF & EPS.


  18. Mandar says

    Under what section I can claim tax deduction for NPS as per current budget? And what’s the max limit? Thanks!

    • Nine Million Dollars says

      Hi Mandar

      I am unable to update the current budget changes. But as per the last budget,NPS is covered under sec 80ccd

  19. Parag Kulkarni says


    Thanks for info.My wife is 35 years old and want to start NPS .What amount she can expect at age 60 with current rate of inflation provided she contributes Rs 10000 /- per annum?

    • Nine Million Dollars says

      Hi Parag
      Adding Rs 10000 per month would make you around 7.8 Lakhs after 25 yrs assuming 9% returns which is on a higher side. Advise you to increase investment amount after some time

    • Nine Million Dollars says

      Hello Harsh
      Under Corporate National Pension Scheme, your employer’s contribution to your Nation Pension Scheme account will not be added in your tax based income, subject to a maximum of 10 percentage of your basic salary plus Dearness allowance

  20. mohd yusuf says

    dear sir
    dear sir
    i am 30 years old
    I am a private job i want to invest 1000 per mnth to nps.
    what amount will i get at time of retirement?
    How much pension i will get at the time of 60 year

    • Nine Million Dollars says

      The money in national pension scheme is locked till the time you are aged 60 years and at the time of retirement, you are entitled to a lump sum payment, with a minimum of 40% used to buy annuities that will earn a monthly pension.
      As per your query, if you invest Rs 1000 per month i.e Rs 3,60,000 in 30 years, you can earn around 16.5 Lakhs after 30 years @ assumed rate of return of 8.5% as per HDFC SIP Calculator

      Let me know for any more queries!

  21. says


    I am working in private company, i can invest 2000/- per month.Present my age 28 years , suppose i am investing up to 60 years.what amount can i get at age 60 and let me know what amount can i get as pension.

  22. Ravi says

    I have changed two organizations in last 3 years. PF got deducted at both places, but I have not transferred so far. Now can I open a NPS account on my name and opt to transfer those PF amounts into new NPS directly?

  23. Sandeep Kumar Goel says

    hello sir

    how r u

    what do u do

    I m promoting Central Govt. project NPS-Swavlamban PRAN CARD …..We are giving Pran Card Free of Cost alongwith a business opportunity to make upto 2000/- daily …..r u interested in making gud money by Indian Govt. Pension Scheme ????

    If yes, then plz visit my wall latest post at https://www.facebook.com/sandeep.goel.56 or u can also contact me at 9355817442

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