National Pension Scheme (NPS): Everything You Need to Know

Everyone desires a retired life devoid of stress. During one’s working years, it is possible to amass a sizeable retirement nest egg by investing prudently in a safe plan. National Pension Scheme is a popular retirement investment option in India (NPS).

Here, we explain everything you need to know about the National Park Service. Read on to determine if the NPS can meet your retirement plan’s needs.

What is NPS?

NPS (National Pension System) is a defined contribution-based pension scheme launched by the Indian government with the following goals:

  1. To offer retirement income
  2. Long-term market-based returns that are reasonable
  3. Provide pension coverage to all citizens.
Tax benefits

It is based on the Permanent Retirement Account Number (PRAN) that is assigned to each NPS subscriber upon enrollment.

Prior to its introduction in 2004, NPS was exclusively available to Central Government workers. In 2009, however, it became available to all Indian nationals. The Pension Fund Regulatory and Development Authority regulates the scheme (PFRDA).

Unique features of NPS

  • Voluntary Scheme. …
  • Flexibility. …
  • Portability. …
  • Independence. …
  • Safe Investment. …
  • Low-cost scheme.

Who is eligible to join NPS?

NPS is open to all Indian citizens between the ages of 18 and 60. The only requirement is that the individual adheres to Know Your Customer (KYC) standards.

Types of National Pension Scheme Accounts

Two forms of NPS accounts exist:

Tier-1 compte

Tier-2 compte

CategoryTier-1 account
Tier-2 account
Initial contribution₹ 500₹ 1000
Minimum contribution/year₹ 1000₹ 250
Maximum contributionNo limitNo limit
Tax Benefits

Options for investing in the NPS

NPS gives you the freedom to choose your own investment strategy and professional Pension Fund Managers. You have to choose one of the eight Pension Fund Managers and the type of investment you want to make (Automatic or Active) within the four asset classes:

  • Equities
  • Corporate Bonds
  • Government Securities
  • Alternative Investment Funds
Also Read:- The Basis Of The Payments And Banking Systems

Tax Benefits under NPS

Individuals can receive a tax credit:

Anyone who is a member of the NPS can get a tax break under Sec. 80 CCD (1), up to a total of 1.5 lakh, under Sec. 80 CCE.

All NPS subscribers can get a special tax break under section 80CCD

Under subsection 80CCD, only NPS subscribers can get an extra tax break for investing up to 50,000 in an NPS (Tier I) account (1B). This is in addition to the 1.5 lakh deduction allowed by section 80C of the Income Tax Act of 1961.

Exit from NPS

People can leave the NPS scheme after 10 years or when they reach the age of retirement.

Pre-mature Exit:

Leave before you’re 60 years old or the age of retirement.
Up to 20% of the fund can be taken out all at once.
Balance 80% of the money will be put into an annuity.
If the corpus is Rs. 2.5 lakh, the whole corpus can be withdrawn.

Exit on retirement

When a subscriber retires or turns 60, the service should end.
Up to 60% of the fund can be taken out all at once.
Balance 40% of the amount is to be put into an annuity.
If the corpus is 5 lakh, the whole corpus can be taken out.

When the subscriber leaves the plan at age 60, he or she can do one of the following things:

  1. Keeping your NPS account: Subscribers can keep putting money into their NPS accounts after they turn 60 or retire (up to 70 years). This contribution made after age 60 is also eligible for tax breaks through the NPS.
  2. Deferment (both annual payment and lump sum): Subscribers can put off withdrawals and keep their money in the NPS until they are 70 years old. Any of the following is an option for subscribers:

  1. lump-sum payment-only withdrawal
  2. only the annuity
  3. put off both the lump sum and the annuity.

3. Start your Retirement: A subscriber can leave NPS if he or she doesn’t want to keep or use the account.

Note: When the subscriber dies, the nominee or legal heir of the subscriber gets the entire accumulated pension corpus.

Partially leaving the National Pension Scheme (NPS)

For early withdrawal from NPS, the following conditions must be met:

  1. The subscriber should have been with NPS for at least 3 years.
  2. The withdrawal amount can’t be more than 25% of what the subscriber put in.
  3. During the whole time of the subscription, you can only cancel up to three times.
  4. Withdrawals are only allowed for certain reasons, such as;

Children getting a better education
Children getting married
For the purchase or construction of a home (in specified conditions)
To treat life-threatening illnesses, etc.

NPS SIP and same-day NAV

One thing about NPS that sets it apart from other retirement products and makes it appealing same-day NAV SIP, like with mutual funds.

With the D-Remit facility, you can set up SIP in NPS and get the NAV for your investment on the same day.

Costs in the National Pension Scheme (NPS)

When compared to other funds, NPS has very low fees for transactions and services.

Here are the maximum management fees that Pension Fund Managers can charge for the different types of Assets Under Management (AUM).

Slabs of AUM managed by the Pension Fund ( in crores)Maximum Investment Management Fee (IMF)
Up to Rs 10,0000.09%
Rs 10,001 – Rs 50,0000.06%
Rs 50,001 – Rs 1,50,0000.05%
Rs 1,50,000 and above0.03%

With management fees of less than 0.1%, NPS is the least expensive managed fund. Other asset management companies charge expense ratios for Mutual Funds that range from 0.50% to 1.50%.

With management fees of less than 0.1%, NPS is the least expensive managed fund. Other asset management companies charge expense ratios for Mutual Funds that range from 0.50% to 1.50%.

NPS is, in fact, a long-term investment product that was made with retirement in mind. But as a product, it has changed in recent years and now takes into account almost every way we invest, whether it’s for retirement, tax savings, short-term goals, etc.

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