Beginner guide · 6-minute read
NPS, explained simply
NPS (National Pension System) is a retirement account regulated by PFRDA. You put money in while you work, and it's invested in the mix of shares and bonds you choose. When you leave, after 15 years or at 60, most of it can come out as cash and the rest buys a monthly pension.
Checked on 15 Oct 2026 against PFRDA's exit regulations (as amended on 16 Dec 2025).
In one minute
- Who runs it
- Pension fund companies regulated by PFRDA. Indian citizens from 18 to 85 can join; many employers offer it too.
- What it earns
- It depends on your mix. With half in shares, this site plans on 8.1–11.4% a year.
- When it comes out
- After 15 years or at 60 if you joined on your own; at retirement through an employer. Up to 80% as cash, at least 20% buys a pension.
- Tax
- 60% of the balance is tax-free at exit, and the pension is taxed as income. Up to ₹50,000 a year gets an extra deduction in the old regime.
How it works, with real numbers
Say you put in ₹5,000 a month from 30 to 60, half in shares. At 9.7% a year, your NPS would grow to about ₹98,08,903 from ₹18,00,000 of your money.
At 60 you could take ₹78,47,123 as cash. 60% of the balance is tax-free; the rest of the cash is taxed here at 30%, about ₹6,12,076. The other ₹19,61,781 buys a pension of about ₹9,809 a month at 6%.
Until December 2025 the most you could take as cash was 60%. Now it's 80% for people outside government jobs. Whether the extra 20% is taxed hasn't been clarified, so this guide treats it as taxable.
Pros and cons
Good things
- Very low fees. About 0.1% a year for managing the money.
- Extra tax deduction (old regime). Up to ₹50,000 a year on top of the usual ₹1.5 lakh.
- Employer money is tax-friendly. Your employer's contribution gets a deduction in both regimes.
- You choose the mix. More shares for growth, more bonds for steadiness, or let it adjust with age.
- Most of it can come out as cash. Up to 80% at a normal exit.
Things to watch
- Locked for a long time. Until 60, or 15 years if you joined on your own. Only limited withdrawals before that.
- Part must buy a pension. At least 20%, and the pension is taxed as income. Leave early and at least 80% must buy one.
- Moves with the markets. The share part can fall, especially close to retirement.
- Tax on the extra cash is unclear. Only 60% is clearly tax-free.
Is it right for you?
Mistakes to avoid
- Leaving too early. Before 60, or 15 years if you joined on your own, at least 80% must buy a pension.
- Forgetting the mix. Too little in shares grows slowly over decades; too much just before retirement can hurt if markets fall.
How to start
- Open an account online (eNPS), at a bank, or through your employer. You'll get a PRAN, your NPS account number.
- Pick a pension fund and a mix: auto choice changes it with age; active choice lets you set it.
- Contribute whenever you like, at least ₹1,000 a year.
Words you'll see
- PRAN
- Permanent Retirement Account Number: your NPS account number.
- Tier I
- The main NPS retirement account, with the lock-in and tax benefits.
- Annuity
- A pension you buy from an insurer with a lump sum; it pays you every month for life.
- Active and auto choice
- Setting the share/bond mix yourself, or letting it shift towards bonds as you age.
This guide explains how things work. It is not advice on what you should invest in. NetReturns is not SEBI-registered.