- 5 min read•
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- Published 18 Dec 2025
Key Highlights
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The National Pension Scheme (NPS) and Atal Pension Yojana (APY) are two distinct retirement plans provided by the Indian government.
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NPS is a voluntary retirement savings scheme. The Pension Fund Regulatory and Development Authority (PFRDA) oversees it. It is open to all Indian nationals aged 18 to 65.
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APY is for individuals with low income and no access to pension programs. People between 18 to 40 years old can enrol in it. It offers a fixed monthly pension between Rs. 1000 and Rs. 5000.
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NPS carries a higher potential risk due to market exposure. However, APY carries a lower risk.
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NPS provides more flexibility with withdrawals and account options, whereas APY is less flexible.
What is the National Pension Scheme?
The National Pension Scheme (NPS) is a retirement savings scheme. It is voluntary. So, it is not compulsory to participate in it. The Indian government introduced it in 2004. The Pension Fund, Regulatory and Development Authority (PFRDA) governs the fund. All Indian nationals between the ages of 18 and 65 are eligible for NPS.
Features of NPS
The following are the key features of NPS.
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You can withdraw 60% of the total amount at maturity as a lump payment. The remaining 40% will be paid as annuities throughout your life.
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Subscribers have the option to select between Tier 1 and Tier 2 accounts.
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Depending on the risk tolerance and age of the subscriber, the NPS invests in a combination of government securities, fixed income, and equity investments.
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NPS Tier 1 account has a longer lock-in period. However, it offers tax benefits.
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The Tier 2 account is optional and has no tax benefits or lock-in period.
Over time, the NPS has become a popular choice for retirement savings.
What is Atal Pension Yojana?
Launched in 2015, the Atal Pension Yojana is a government-backed pension scheme. Its objective is to provide financial stability for those without access to official pension programs and low incomes.
Features of APY
The following are the characteristics of APY:
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APY is available for individuals between 18 to 40 years. The scheme matures at 60 years. The pension amount may be customised to meet personal needs. The range is between Rs. 1000 to Rs. 5000.
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Age, preferred pension, and contribution frequency are considered while calculating contributions.
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Investors and their spouses receive a guaranteed pension at maturity.
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When the person becomes 60 years old, the APY plan matures.
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Under the APY Scheme, you can select the pension amount according to your needs.
NPS vs APY
Let’s look at the difference between NPS and APY based on various parameters. Here’s a table summarising NPS vs APY.
Age Limit | 18-55 years | 18-40 years |
Nationality Criteria | Indian residents and NRIs | Indian residents only |
Tax Benefits | Up to Rs. 2 lakh tax rebate under Section 80CCD(1b) | No specific tax benefits |
Account Types | Tier 1 (mandatory) and Tier 2 (optional) | Single account only |
Premature Withdrawal | Limited withdrawals allowed under new rules (max 3, up to 25% of total) | Not allowed, except in specific circumstances (death, medical condition) |
Investment Options | Choice or expert-driven based on age | Pre-defined investment strategy |
Guarantee of Pension | No guaranteed pension, market-dependent | Guaranteed fixed pension after retirement |
Minimum Contribution | Rs. 500 per month | Rs. 42 to Rs. 1454 per month |
Control over Investments | More control for Tier 2, limited for Tier 1 | No control |
Risk | Higher potential risk due to market exposure | Lower risk, fixed returns |
Flexibility | More flexible with withdrawals and account options | Less flexible |
NPS vs APY: Which One Should You Choose?
Any investment decision depends on an individual's investing objectives, financial aspirations, and risk tolerance. NPS is a better option if you are looking to build a retirement corpus. This is because it offers greater flexibility regarding investment options and larger contribution levels.
However, APY would be more practical because it gives a fixed monthly pension between Rs. 1000 and Rs. 5000. This is preferable if you want to ensure a stable pension after retirement.
Returns in the NPS
The existing market conditions determine the revenues under NPS. You get returns based on the type of investment and net asset value. The returns on a low-risk portfolio would be less than a portfolio with equity investments.
Returns in APY
The primary objective of the APY was to provide a pension program to the unorganised sector of India. It gives a fixed pension every month after 60 years of age. The range is from Rs 1000 to Rs 5000. The amount will be determined based on the age and contribution of a person.
Conclusion
APY is a good option for individuals looking for consistency. It has a straightforward approach and offers guaranteed returns. On the other hand, the NPS is a market-linked scheme. The returns depend on existing market conditions. It offers more opportunities for higher profits. However, the risks are also relatively higher than APY. One may choose between NPS and Atal Pension Yojana, depending on his personal preferences, risk tolerance, and financial goals, one may choose between NPS and Atal Pension Yojana. You should carefully consider your investment preferences and financial strength to decide which best suits your long-term goals.
