NPS Tier II vs Tier I: do the same schemes return the same?

Two accounts, one set of schemes

An NPS subscriber can hold two accounts. Tier I is the pension account: it carries the tax deductions and is locked until 60. Tier II is an add-on with no lock-in, which you can withdraw from on any day. Our guide to how the NPS works covers both.

Both tiers offer the same three schemes, E for equity, C for corporate bonds and G for government securities, and all ten pension funds run them under the same rules. But each tier's scheme is a separate fund with its own portfolio and its own NAV. UTI Pension Fund's Scheme E Tier I and its Scheme E Tier II share a manager and a rulebook, and nothing else.

So do they earn the same? We compared all 30 pairs from the NAVs NPS Trust publishes, to its latest NAV date, 8 October 2026. Returns are for each scheme's original POP variant; periods of a year or more are annualised (CAGR), computed as on our NPS returns page.

Scheme E: close, but not identical

Each cell is Tier I, then Tier II. A dash means the scheme is too young for the period.

Over ten years the two tiers are nearly the same fund. At the six managers with a ten-year record, the tiers are at most 0.18 percentage points a year apart (LIC, 10.47% against 10.29%), and Tier II is marginally ahead at four of the six.

Over shorter periods the gaps widen. Over three years Axis's Tier II returned 0.63 points a year more than its Tier I, and UTI's 0.55 points less. Over one year DSP's Tier II fell 11.19% against 9.69% for its Tier I, the widest gap in the table. DSP's schemes are the youngest here, launched in December 2023.

Since launch is a different story. HDFC started both tiers at ₹10 in July 2013. On 8 October Tier I's NAV was ₹50.06 and Tier II's ₹43.52. Almost all of that gap opened in the first 18 months: by December 2014 the Tier II NAV stood at 85% of Tier I's, and it stands at 87% now. LIC's equity pair, launched in June 2013, shows the same shape, 84% at the end of 2014 and 83% today. The data cannot say why, only that the gap was made early and has barely moved since.

Schemes C and G: a small, consistent lean

Percentage points a year, across managers with a record for each period.

In government bonds, Tier II has been ahead almost everywhere. It beat Tier I at all ten managers over one year, all nine with a three-year record and all seven with five. The gaps are small except at SBI, where Scheme G Tier II returned 2.89% over the year against 1.25% for Tier I, and 6.16% a year over five years against 5.77%.

In corporate bonds, Tier I has the edge. Over five years, Tier II earned less than Tier I at all seven managers with a record, by a median 0.11 points a year. The widest gap is again SBI's: 6.41% for Tier I against 6.17% for Tier II.

Over ten years, every C and G pair is within 0.27 points a year. None of these gaps is large enough to matter next to the choice of scheme: Scheme E lost money at all ten managers over the year, while Scheme G gained at all ten.

What Tier II gives up, and what it gets

Access. Tier II money can be withdrawn on any day. Tier I is locked until 60, or 15 years for a non-government subscriber if that comes first; before then, partial withdrawals are allowed only after three years, up to 25% of your own contributions, for listed reasons such as education, a first home or illness. At exit, at least 20% of a Tier I corpus must buy an annuity, or 40% for government employees.

Choice. You can change your pension fund once a financial year and your asset mix up to four times a year, and the rules apply separately to each tier. A Tier II account need not copy Tier I's manager or mix.

Tax. This is where the two tiers differ most.

• Tier I earns a deduction for your own contribution under the old regime only: within the ₹1.5 lakh limit of old section 80C (now section 123) and an extra ₹50,000 under old section 80CCD(1B) (now section 124). The employer's contribution is deductible in both regimes. At exit, the lump sum is tax-free up to 60% of the corpus. NPS tax benefits has the detail.
• An ordinary Tier II account earns no deduction going in and no exemption coming out. Our NPS guide's verdict is that it works like a low-cost mutual fund with worse tax treatment than an actual mutual fund. Check how your gains will be taxed before you treat it as a substitute for one.
• The Tier II Tax Saver scheme is the exception, open to central government employees: a deduction under old section 80C (now section 123), in the old regime only, and a three-year lock-in. Over five years its returns ran from 5.80% a year at SBI to 6.72% at LIC.

How to read this

The figures are for the POP variant, the NAV for subscribers who joined through a bank or other point of presence. Since 1 April 2026 their POP charges are taken through that NAV, in both tiers. Charges taken by cancelling units are not in any NAV, so an individual account earns slightly less.

A tenth of a point between two separate portfolios is noise, not a reason to prefer a tier. The real decision is what the money is for. Retirement money that you will not touch belongs where the deduction and the 60% exemption apply. Money you may need sooner should be compared with a mutual fund on tax and access, not on these return gaps: the NPS vs mutual fund calculator and our post on where to park short-term money are the places to start. For how the ten managers rank on Tier I alone, see NPS returns by pension fund.

Past returns do not predict future ones, and none of this is a recommendation of any pension fund, scheme or tier.