How to Smartly Invest in National Pension Scheme (NPS) in 2025

Introduction – What is NPS?

When I first heard about the National Pension Scheme (NPS) back in 2017, I wasn't immediately convinced. Like many young professionals, retirement seemed distant, and locking away money didn't feel appealing. However, after diving deeper into financial planning and experiencing firsthand the benefits of disciplined investing, my perspective shifted dramatically.

Introduced initially for government employees in 2004 and later opened to all citizens in 2009, NPS is a government-backed, market-linked retirement scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It uniquely combines wealth creation with tax-saving opportunities, making it increasingly popular among salaried professionals in India.

Personally, investing in NPS became a turning point—it not only significantly reduced my annual tax outgo but also helped me build a substantial corpus, giving me confidence and clarity about my financial future. In this guide, I'll share insights from my own journey and show how you too can leverage NPS for a secure and prosperous retirement.

Benefits of NPS in 2025

• Enhanced Tax Deductions: ₹50,000 additional benefit under Section 80CCD(1B), plus employer contributions up to 14% deductible.
• Higher Returns Potential: Market-linked investments offering better growth compared to traditional retirement plans.
• Flexible Investment Choices: Option to choose between Active or Auto investment strategies tailored to your risk tolerance.
• Tax-Free Lump Sum: Withdraw up to 60% of your corpus tax-free upon retirement.
• Cost Efficiency: Very low management fees, ensuring maximum funds are allocated towards retirement savings.
• Complete Portability: Easily transferable across jobs and geographic locations without any hassle.
• Partial Withdrawals: Facility to withdraw up to 25% of your contributions tax-free for specific emergencies after three years.

How to Enroll in NPS – Step-by-Step Guide

1. Visit the Official NPS Portal: Go to enps.nsdl.com to start your enrollment.
2. Register as Individual Subscriber: Click on “Register” and select the option "Individual Subscriber."
3. Complete Your Personal Information: Enter your PAN card details, select your preferred bank or Point of Presence (POP), and upload your KYC documents.
4. Choose Your Investment Strategy: Select either the Active Choice for manual asset allocation or Auto Choice for automated risk-adjusted allocation based on your age.
5. Select a Fund Manager: Choose from reputable NPS fund managers such as HDFC, ICICI Prudential, Kotak, SBI Pension Funds, and others based on their historical performance.
6. Make Your Initial Contribution: Complete the payment of your initial contribution (minimum ₹500) and finalize the registration by providing your e-signature or OTP-based authentication.
7. Receive PRAN Number and Kit: Upon successful registration, you'll receive your Permanent Retirement Account Number (PRAN) and welcome kit via email and physical mail.

Top NPS Fund Managers – Performance Chart (2025)

Based on recent returns data, here's a breakdown of high-performing fund managers under each scheme. Make sure to compare past performance annually to make informed decisions.

• Equity Tier-I (Scheme - E):HDFC, ICICI, and UTI Pension Funds consistently show strong 5-year and 10-year returns (above 12%). SBI Pension Fund is reliable but slightly conservative in equity exposure.
• Corporate Bonds Tier-I (Scheme - C):Kotak and LIC have shown steady 3-year and 5-year performance around 7.5%–9%. ICICI and SBI are close followers with minimal volatility.
• Government Securities Tier-I (Scheme - G):SBI and LIC dominate with long-term performance nearing 9%, making them ideal for low-risk, long-duration allocation.

Best Practices to Maximize NPS Benefits

• Start Early: Begin investing as early as possible—even small monthly contributions like ₹500 from age 25 can significantly amplify your corpus through the power of compounding.
• Consistent Contributions: Regular monthly Systematic Investment Plans (SIPs) are better for long-term wealth creation than infrequent lump-sum investments.
• Leverage Employer Contributions: Prioritize employers offering substantial NPS contributions, effectively increasing your retirement savings and maximizing tax advantages.
• Annual Portfolio Review: Regularly monitor and adjust your investment strategy—switch between Active and Auto choices based on market conditions, age, and risk tolerance.
• Choose Proven Fund Managers: Evaluate fund manager performance annually, focusing on consistent long-term returns over 1, 3, and 5 years.
• Increase Contributions with Salary Hikes: Increase your NPS contributions proportionally with annual salary increments to steadily enhance your retirement fund without feeling financial strain.
• Diversify Investments Within NPS: Balance your NPS portfolio across equities, corporate bonds, and government securities to manage risk effectively and optimize growth potential.
• Stay Informed: Keep yourself updated with policy changes and government incentives related to NPS to maximize financial benefits continuously.

Common Mistakes to Avoid

• Delaying Investment: Starting your NPS contributions late in your 30s or 40s significantly reduces the power of compounding.
• Overlooking Employer Contributions: Neglecting to leverage employer-provided NPS benefits is equivalent to missing out on free money and additional tax benefits.
• Passive Investment Choices: Relying solely on the default Auto investment mode without periodic evaluation can limit your returns potential.
• Not Maximizing Tax Deductions: Failing to fully utilize the additional ₹50,000 tax deduction under Section 80CCD(1B) reduces your overall tax savings and retirement corpus.
• Ignoring Regular Portfolio Reviews: Failing to monitor and adjust your NPS asset allocation regularly may result in suboptimal returns.
• Underestimating the Investment Amount: Contributing minimally without increasing contributions periodically can lead to insufficient retirement savings.

How My Perspective on NPS Changed Over Time

When I first invested in NPS at 29, I saw it purely as a tax-saving tool. Initially skeptical about locking away my money until age 60, it wasn’t until a few years later that I fully grasped its true potential. Watching my retirement corpus steadily grow—especially the equity portion—shifted my mindset completely.

Unlike traditional retirement schemes (EPF, EPS), NPS offered me flexibility, better market-linked growth, and a sense of control over my future finances. Yes, the lock-in felt restrictive initially, but soon became an advantage by ensuring disciplined investing. It taught me patience and encouraged long-term thinking.

Three Important Lessons from My NPS Journey

• Early and Consistent Investing Pays Off: Starting even small contributions early dramatically amplifies your retirement corpus through compounding—something I underestimated at first.
• Balanced Equity Exposure is Key: Initially hesitant about equities, I learned the importance of maintaining substantial equity exposure early on to maximize long-term growth without taking excessive risks.
• Annual Reviews are Crucial: Regularly reviewing fund manager performances and reallocating my portfolio helped me stay on top of market changes and consistently enhance returns.

Final Thoughts

Whether you're in the old or new tax regime, NPS can be your silent wealth builder. Invest wisely, stay consistent, and let compounding do the heavy lifting. If you're salaried and haven’t explored NPS yet—now is the perfect time to start.

Start your NPS journey today and also try our Salary Calculator to see how NPS affects your in-hand salary in 2025.