National Pension Scheme (NPS)

national pension scheme

National Pension Scheme is a pure retirement planning product. NPS is regulated by PFRDA ( Pension Fund Regulatory & Development Authority)

The money in this plan is invested in equity or debt as per the choice, equity such as Share Market & Debts can be Corporate Bonds & Government Securities depending on the ratios.

National Pension Scheme Types

There are two types of NPS

  • NPS Tier 1 – Pure Pension Plan
  • NPS Tier 2 – Investment Plan

National Pension Scheme Features & Tax Benefits

Let’s see the features & tax Benefits of Tier 1 Account

  1. Higher long term returns compared to PPF, EPF, FD depending on the level of risk you like to take because this is an equity component
  2. This plan gives you a tax-free return under the category EEE
  3. Tax Rebate under Section 80C up to Rs. 1.5 Lakhs, additional benefits up to Rs. 50,000 ( over and above Rs. 1.5 Lakhs Limit)

If you are a corporate employee additional rebate on the employer’s contribution can be obtained, You can contribute up to 10% of your salary

This is a very good product because you get the change to invest in equity which means the returns are high and also the tax benefits

Who will manage the fund in NPS?

The NPS is managed by Pension Fund Manager

In the government sector, the pension scheme is managed through 3 pension fund manager LIC, SBI & UTI

For the non-government sector, the pension scheme is managed by LIC, SBI, UTI, HDFC, ICICI, KOTAK, BIRLA SUN LIFE & RELIANCE

Types of Investments

1. Equity – High Risk & High Returns

2. Corporate Bonds – Moderate Risk – Moderate Returns

3. Government Securities – Low Risk – Steady Returns

Asset allocation can be decided by the subscribers or it can be auto choice

Under Active Choice, subscribers can invest up to 75% into equity and the remaining 25% can be invested in corporate bonds & securities depending on the level of risk he or she likes to take

For example, If your age is less than 35 the fund the manager may suggest you to be more aggressive that is 75% on equity for the high returns

If your age it 40 years or above the fund manager may suggest you to invest 50% in equity and 50% in debt, So these choices purely depends on the subscribers

Here the subscriber can change the preferences, change the pension fund manager once in a financial year and also switch between the active choice and manual choice for asset allocation twice in a financial year

Ok now let’s see

How to open an NPS Account?

  1. First of all your age should be between 18 to 65 years
  2. Any resident of Indian or an NRI is eligible to open an account

There are 2 ways to open an account

#1. You can visit any authorized bank and open an account

These authorized banks are known as POP (Points of Presence)

If you are a government employee then this POP can be done in your office which is called as Nodal Office or at the time of joining the NPS forms are made to fill

If you are a private sector employee then you have to visit the POP in person and submit the KYC documents, fill up the registration form post which a PRAN ( Permanent Retirement Account Number) gets generated

PRAN is similar to PAN number, it has 12 Digit unique & portable number

To know your POP service provider you can use the below website

  1. Click on find your nearest POP Service provider
  2. Select your State
  3. Select your Location

After these steps, you can find the nearest service provider on the list

#2. How to open NPS Account Online?

Visit the website and register yourself

Three main things are required for the online process

  1. Aadhar Number linked with mobile number
  2. Scan image of your Signature
  3. Net Banking facility

After all the steps completed successfully, a PRAN Number is generated and a card will be delivered physically to the address provided by you

Note: A Min of Rs. 500 should be deposited as the initial investment to open an account

To keep the account active you need to invest at least Rs. 500 once in a year

The investments can be made as per your choice monthly, quarterly or yearly and as and how much you like to invest

At Retirement, you get 3 options

  1. Continue till the age of 70 years
  2. Deferment of withdrawal
  3. Exit from NPS, you can withdraw only 60% of the corpus amount the remaining 40% will be invested annuity pension plan in return you get the money as pension every month

NPS Withdrawal Rules

If at all you want to withdraw the money early then you can withdraw under partial withdrawal in NPS

Criteria can be under critical illness, Child’s higher education, You are allowed to withdraw only 3 times before retirement after Min 3 years of investment

You can withdraw up to 25% of own contribution

Features & tax Benefits of Tier 2 Account

  • It’s a pure investment plan
  • No Minimum Investment
  • No restrictions on withdrawal
  • No Tax Benefits in the account

How to open a Tier 2 Account?

  1. First of all, to open a Tier 1 account one should have Tier 1 account without which it is not possible to open a tier 2 account
  2. The procedure is the same as opening the Tier 1 account

Friends hope this article helped in understanding

  • National Pension Scheme
  • NPS Tier 1 & NPS Tier 2 Account types
  • National Pension Scheme Features & Tax Benefit
  • NPS Account Login
  • NPS withdrawal rules
  • How to open NPS account

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