NPS Tier II Scheme: These funds delivered up to 18% returns

Corporate bonds are suitable for investors seeking steady returns with a low to moderate risk appetite

• NPS Tier II allows flexible, penalty-free withdrawals anytime.
• Equity funds in Tier II gave returns up to 18.79 percent in 3 years.
• Corporate bonds yielded up to 8.56%, government bonds 9.11%.

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The NPS Tier II Scheme allows subscribers to invest voluntarily in market-linked instruments with complete flexibility and no lock-in. Unlike the retirement-focused Tier I account, Tier II permits withdrawals at any time without penalty.

While both Tier I and Tier II operate much like mutual funds, returns differ across schemes and pension fund managers. Though subscribers must have a Tier I account, Tier II is suitable mainly for disciplined investors seeking a low-cost, long-term investment option alongside their retirement savings.

The NPS data on Tier II schemes, as of February 23, indicates that pension fund managers have delivered mixed returns across asset classes and tenures, with equity funds delivering up to 17.99 percent, corporate bonds 8.56 percent and government 9.11 percent.

We examined returns of 10 pension fund managers under the NPS Tier II scheme across equity, corporate and government bonds, analysing returns up to February 23, 2026.

NPS Fund Performance: Scheme E - Equities (Tier II)

Risk level: high

The three-year return from Tata Pension Fund stands out as the top performer, delivering the highest return at 18.79 percent from their equity fund. Whereas DSP Pension Fund gave the lowest return of 8.48 percent over the one-year period, compared to Tata’s 17.99 percent, though both funds are relatively new in the NPS Tier II equity category.

Overall, returns under the Scheme E Tier II ranged from 8.48 percent to 18.79 percent across tenures. In comparison, the highest return from corporate bonds is 8.56 percent for 10 year, and government bonds provided 9.11 percent, as per NPS Trust data on Tier II returns up to February 23, 2026.

NPS Fund Performance: Scheme C - Corporate Bonds (Tier II)

Risk level: moderate to low

Corporate bonds are suitable for investors seeking steady returns with a low to moderate risk appetite. As such, NPS Tier II provides subscribers with exposure to investment in corporate debt funds. These pension funds have delivered steady returns, ranging from 8.13 percent to 9.04 percent since inception. Investors can check returns from various pension funds for a period up to 10 years, with HDFC Pension Fund top the chart with 8.56 percent. Overall, returns under the Scheme C Tier II ranged from 6.96 percent to 8.56 percent.

NPS Fund Performance: Scheme G - Government Bonds (Tier I)

Risk level: Low

Government bonds invest in fixed-income debt instruments, including central government securities and various state government bonds. LIC, ICICI, SBI, HDFC DSP, Kotak, and UTI are the oldest pension funds in this investment category. The assets’ returns as on 23 February stood at 9.11 percent (LIC), advancing marginally higher than returns from corporate bonds’ 8.56 percent for the 10-year period. That said, the fund has performed well over the long term. Overall, returns under the Scheme G Tier II ranged from 3.49 percent to 9.11 percent as of February 23, 2026.

Comparing returns of NPS Tier I and Tier II Schemes

The NPS Trust has also released returns for the Tier I scheme. We compared the highest returns from both Tier I and Tier II schemes across tenures to gauge their performance as of February 23, 2026.

Interestingly, the NPS Tier I scheme has outperformed Tier II returns in the equity category over 1, 3, 5, and 7 years, except for the 10-year tenure, though the difference is marginal. Similarly, Tier I delivered significant returns from corporate bonds. Whereas NPS Tier II government bonds have given remarkable returns across tenures during the period.

Investors should exercise caution and carefully plan when selecting an NPS fund manager, and ensure that their asset allocation aligns with their risk appetite and long-term financial goals before investing in the National Pension System.