Everything to Know About Average Returns On A Pension Scheme

NPS or National Pension System is a voluntary contribution-based pension scheme backed by the government of India. When it was initially launched, it was limited only for the government employees, but eventually it was opened for all salaried employees, except people from the armed forces.One of the significant features of the NPS is that it allows you to periodically invest a small amount towards your retirement fund through the working years and build a sizeable corpus for the future. And when you reach the retirement age, you can partially withdraw the funds from your pension account in a lump sum and use the remaining amount to buy an annuity and get a regular pension. Thus, NPS allows you to get a regular income even after retirement.Many people prefer investing in NPS mainly because opening an NPS account allows people to start investing a small amount towards retirement. You can invest as little as Rs. 500. Also, compared to other long-term pension schemes, NPS is known to offer better returns mainly because it provides market-linked returns. This means you can be assured of getting inflation-adjusted returns in the future.The money you contribute towards your NPS account is invested in different asset classes, including equity-related funds, government bonds, stocks, etc., to generate valuable returns for you. The fund managers make all the investment decisions on your behalf and based on your long-term goals and risk-taking capacity. Thus, you can be assured that your money is managed by the experts and the chance of losing the capital is minimal.Also, unlike the bank fixed deposit schemes, the returns you get from NPS are fully tax free. It is one of the few investment schemes in India that enjoys the EEE (exempt-exempt-exempt) tax status. This means the amount you contribute towards the NPS is eligible for tax deduction under Section 80C of the IT act. Similarly, the amount you may withdraw in lump sum when you withdraw after you reach the retirement age is tax-exempt and the returns generated are eligible for tax deduction.

If you compare the pension scheme returns, with returns generated from other fixed-returns schemes like bank fixed deposits or bank savings account, historically NPS has provided better results. Also, since the money you invest in an NPS account grows with compounding effects, you have better chances of building a bigger corpus as compared to investing the same in fixed or recurring deposit schemes.Since its conception, the National Pension System has delivered steady returns of about 8% to 10% every year. Also, if you are not happy with the returns generated or if it is not as expected, you can switch to a different fund manager from the existing one.Another significant feature of the NPS investment is that despite the high returns’ potential, the risk associated is significantly low compared to investing in the stocks. This is mainly because of the limitation on the equity exposure, which is capped at 50% to 75% for all NPS. Additionally, the investments in equity-related assets reduces by 2.5% every year after the investor crosses 50 years of age. This plays a significant role in safeguarding your funds from the market volatility and you can be assured of getting steady returns.The fund managers that act on behalf of the pension scheme distribute the NPS returns to the investors. As an investor in NPS, you can select from eight different pension fund managers. And the returns you get from the NPS investment depends mainly on the asset allocation in your portfolio and the fund manager that you opt.National Pension System is an excellent investment to have your portfolio as the returns you get increases based on the amount allocated to each asset class. It can be challenging to know the exact returns you may get as there is not predetermined compounding rate for NPS. However, you can get an estimate of the returns with the help of Compounded Annual Growth Rate of each asset over time.

You can register for NPS either online or offline. Let us look at the registration process.

Online mode

Registering for NPS online is simple. You must visit the officiation website of the NPS and link your PAN card, Aadhaar Card or Mobile to the service. Fill the application form and submit with the necessary KYC documents.Once the registration is complete, you will get an OTP on your registered mobile number and once the OTP is verified you will get the PRAN (Permanent Retirement Account Number). You must take note of this number for future login and transaction and to check your application status.

Offline Mode

If you are not comfortable with registering for NPS online, you can choose offline registration. You can visit the PFRDA approved financial institution and submit a subscriber form at the office POC and comply with the KYC guidelines.Once the registration process, you must pay the initial subscription amount post which you will get the PRAN. You can use this unique PRAN number for your future transactions such as making contributions to your NPS account or check the accumulated NPS returns.

With high returns potential and low risk of losing the capital, NPS is an excellent investment choice to secure your financial future. It allows you to be financially independent even in your old age after retirement.So, if you have not started investing in NPS, you must start Investing Now and take a step toward securing your future.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.