Savings Schemes
by 5paisa Research Team Last Updated: 2023-08-22T16:24:45+05:30

The full form of NPS & APY is National Pension Scheme and Atal Pension Yojna, respectively. They are two of the most popular retirement planning schemes that prove helpful for Indian citizens to save their hard-earned money for life after retirement. 

While both schemes have been developed for a similar aim, there exists some difference between the two. Taking a close look at the Atal pension Yojna vs NPS will help one to get a clear understanding and develop sound and effective retirement planning. 
 

Understanding Atal Pension Yojana and NPS

The Atal Pension Yojana (APY) and National Pension Scheme (NPS) are retirement schemes the government of India has launched. Since its inception, there has been considerable debate among people concerning NPS vs Atal Pension Yojana. 

While APY is a pension scheme backed by the government, NPS is a voluntary retirement savings scheme that goals to provide retirement benefits to Indian citizens. Let’s take a closer look at both schemes to develop a detailed understanding of the difference between NPS vs APY and the similarities. 
 

What Is Meant By The National Pension Scheme?

The National Pension Scheme is a voluntary retirement savings scheme launched in 2004 by the Indian government. The Pension Fund, Regulatory and Development Authority, regulates the fund. NPS is available for all citizens of India between the age of 18 to 65. 

Under the scheme, the subscriber can open a Tier 1 or Tier 2 retirement savings account with a registered Point of Presence or use NPS trust’s online portal. The investment of the subscriber;’s contributions are made in a mix of government securities, fixed income, and equity, depending on the risk profile and age of the subscriber.

The Tier 1 account comes with an extended lock-in period that also offers tax benefits to the contributors. On the other hand Tier 2 account is a voluntary account having no lock-in period. Tier 2 account doesn’t offer tax benefits. The scheme has received much popularity over the years. 
 

What Is Meant By The Atal Pension Yojana?

Atal Pension Yojana is a pension scheme backed by the government of India and was launched in 2015. The scheme offers financial security to individuals with a low income who have no access to formal pension schemes. 

The subscribers of this scheme can make contributions according to their air and the pension they wish to receive after retirement. The scheme comes with several pension options. The contributions are invested primarily in government securities and looked after by Pension Fund Regulatory and Development Authority, commonly referred to as PFRDA.

The APY provides a fixed monthly pension to those who have attained the oldness of 60. Five different pension plans under the scheme range from a minimum amount of Rs. 1000 to Rs 5000 per month.  

Anyone who is a civilian of India between the ages of 18 to 40 holding a bank account is eligible for this scheme. Enrollment in the scheme can be done quickly, and the scheme also comes with the benefit of the government co-contributing 50% of the contribution made by the subscriber. This is, however, only eligible for subscribers who have registered to the scheme before 31st December 2021. 
 

Difference Between NPS vs Atal Pension Yojana

The table below will provide you with all the information related to Atal Pension Yojana vs NPS. 

 

Factors Affecting The Difference

National Pension Scheme

Atal Pension Yojana

Age

The minimum age to enter into the scheme is 18 years, and the maximum age limit is 55.

The minimum age to enter into the scheme is 18, and the maximum age limit is 40.

Allowance

Only NRIs and Indian citizens are allowed to invest in the NPS.

This scheme is only eligible for the citizens of India.

Post Retirement Pension Guarantee

NPS doesn’t offer any assurance of the post-retirement pension

Atal Pension Yoana offers a post retirement pension guarantee.

Tax Benefits

Investors and contributors can get a tax benefit of a maximum of Rs. 2 Lakhs

Atal Pension Yojana doesn't offer tax benefits to its contributors.

Premature Withdrawals

Only Tier 2 accounts are eligible for premature withdrawals

No withdrawal is allowed before the maturation of the tenure. If, in case, the investor suffers unfortunate death or a severe medical condition, only then the withdrawal might be considered.

Account Creation Options

National Pension Scheme offers its contributors with two options for account creation, Tier 1 and Tier 2.

One account can be created under the Atal Pension Yojana scheme only.

Options Provided To The Investors

National Pension Scheme offers investors the option to choose the medium of investing money

Atal Pension Yojana doesn’t offer its contributors the freedom to choose where to invest.

 

Similarities Shared by NPS and APY?

Despite the numerous differences concerning Atal Pension Yojana Vs NPS, some similarities also need to be mentioned. These are:

●    Pension Fund, Regulatory and Development Authority, manages both pension schemes.
●    Both schemes entertain a similar motto of creating a corpus for retirement wealth. 
●    Under both schemes, the received pension is taxable.
●    On the maturation of both schemes, an individual receives a fixed amount as a pension throughout the remaining lifetime of the contributor. 
 

Where Should You Invest for Optimal Returns – NPS or APY?

The investment decision in any scheme is subject to individual choices and according to their investment objectives, financial goals and ability to take risks. If one is looking for a scheme for accumulating a retirement corpus, NPS would be a better option as it comes with higher limits for contribution and more flexibility considering the available options for investment. 

On the other hand, if a person prefers to secure a fixed pension after retirement with a guarantee, then APY would be a more feasible option, as it offers a fixed pension amount between Rs. 1000 to Rs 5000 per month. 

Returns under National Pension System

The incomes under NPS depend on the present market settings. The return is calculated based on the net asset worth and the type of investment the contributor opted for. A conservative portfolio would generate lower returns as compared to an equity portfolio. 

Returns under APY 

The main aim of the Atal Pension Yojana was to offer a pension scheme for the unorganised sector where the contributors would receive a fixed monthly pension between Rs 1000 to Rs 5000 after the age of 60. The exact amount will be calculated based on the age and contribution made by the individual. 
 

Can Anyone Invest in Both NPS and APY?

One can invest in the national pension Scheme and Atal Pension Yojana simultaneously. But before investing, one must be aware of the rules for contribution as well as the criteria for eligibility to make the most out of the retirement schemes. 

Which is a Better and Safer Investment Option – Atal Pension Yojana vs NPS

Therefore, to sum up, contributors and investors who are willing to take the benefits of prevailing market conditions can choose to invest in NPS. On the other hand, if one is seeking a fixed return within a fixed range, then Atal Pension Yojana would be a fair option for investment. The ultimate choice depends on the age, amount to be invested and the risk-taking capability of the contributor. 

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Frequently Asked Questions

The scheme selection depends on the contributor considering the age, risk-covering capability and amount of contribution. NPS doesn’t offer guaranteed returns, so it might not be suitable for investors looking for one. 

No, one can’t start an APY account without a savings account. Having a savings account is mandatory. 

PPF acts as an instrument for savings developed by the Indian government to provide fixed returns. On the other hand, NPS is an investment tool launched by the government which is retirement specific to create a retirement corpus. 

No, an NPS account is not required to subscribe to APY. To enrol in APY, you can contact your bank or post office and become a contributor by filling up the registration form for APY and providing all your personal and bank account details. 

Yes, you will receive a transaction statement for APY and NPS contributions. 

Yes, both APY and NPS come with death benefits offered to the nominee or the subscriber’s legal heir after the death of the subscriber.

Yes, the same PRAN details can be used for NPS and APY.