NPS Tier 2 Returns | NPS Tier 2 Tax Benefit 2022

What is NPS Tier 2 account?

NATIONAL PENSION SYSTEM Tier 2 account is a voluntary a/c along with easy withdrawal and exit rules.
You can open the Tier 2 account only when you already have an NPS Tier 1 account.
You can open a Tier 2 a/c with a minimum investment of Rs 1,000/-.
though, unlike a Tier 1 a/c, it’s not mandatory to invest at least once each Fiscal year in a Tier 2 a/c.
You can withdraw from your Tier 2 account investment as and when needed without any limitation.
NPS Tier 2 returns do not have a fixed interest.
However, Tier 2 has very good performance without any doubt.
In the last 3 years,
Tier 2 a/c has given a yearly return of 9-10%. and in the last 5 years, average returns stood at approximately 10-11%.
Let’s discuss more the NPS Tier 2 in terms of returns.

Also, Read Understanding The Background of “What is Tier 1 and Tier 2 in NPS”

NPS Tier 2 Performance

As per NPS organization information,
debt schemes of Tier 2 have delivered double-digit returns in the last 1 year.
As per the data shared by the organization,
Scheme G has been topping the charts with a standard return of 10-12% in the last year.

When you invest in Tier 2 a/c, You have two options for investment as follows–

Active Choice – wherein you can choose between the available investment funds and invest.

Auto Choice – The contribution is invested in Class E, C & G of the chosen Pension Fund Manager with percentage as per your age and in accordance with the guidelines of Pension Fund Regulatory & Development Authority (PFRDA).

Each year, as you get older, your investments are reallocated so that equity exposure steadily decreases and debt exposure expands.
This permits you to save your returns from market volatilities.

The four asset classes which are available for investment are as follows –

Class A which invests in alternate instruments (CMBS, MBS, REITS, AIFs, Invlts, etc.),
Class C invests in corporate bonds, Class E which invests in equity, and Class G which invests only in Government securities.

Also Read National Pension System : A Complete Guide for Retirement Plan

NPS Tier 2 Returns(%) in Class E (Equity)

Fund House1 Year3 Year5 Year
HDFC 15.829.7513.80
ICICI 14.748.8212.37
KOTAK 13.477.7512.31
LIC 12.336.4410.57
SBI 14.048.4512.35
UTI 13.758.7512.38

NPS Tier 2 Returns(%) in Class G (Government)

Fund House1 Year3 Year5 Year
HDFC 14.7011.1910.58
ICICI 14.7410.9210.50
KOTAK 13.7810.4310.30
LIC 14.8212.9511.81
SBI 14.3610.8610.51
UTI 13.9310.7410.28

Returns(%) in Class C (Corporate Bonds)

Fund House1 Year3 Year5 Year
HDFC 12.6010.1110.19
ICICI 12.109.709.89
KOTAK 12.349.399.63
LIC 16.0810.4410.24
SBI 12.419.619.72
UTI 13.009.489.56

Returns(%) in Class A (Alternate Instruments)

New Investment Option

Fund House1 Year3 Year
HDFC 8.448.57
ICICI 2.856.12
KOTAK 7.308.41
LIC 7.788.48
SBI 14.5910.92
UTI 4.736.39

NPS Tier 2 Tax Benefit

According to Budget 2019-20, Government employees have a choice to invest in NPS Tier 2 a/c with a lower lock-in period.
A government employee can invest a maximum of Rs 1.5 lakh in the Tier 2 account to claim tax benefit (Section 80C of IT Act. 1961.)
Unlike the lock-in period till the age of retirement, the investment made in Tier 2 a/c under section 80C comes with a lock-in period of 3 years.

Income tax benefit for NPS Tier 2 accounts is not available for non-government employees.

NPS Tier 2 Minimum Contribution per Year

Fund HouseMinimum Contribution
HDFC 0
ICICI 0
KOTAK 0
LIC 0
SBI 0
UTI 0

Source – NPS

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