The National Pension Scheme (NPS) is an investment plan to make your retired life easier. It is a Government of India scheme to provide you with a regular post-retirement income.
You can voluntarily contribute to the fund anytime during your working life. The money then gets invested in government bonds, debentures, and shares. Thus, the money grows, and you receive a lump sum and a monthly amount upon retirement age.
How does National Pension Scheme work?
A professional fund manager pools the amount you save under NPS into a pension fund. The money gets invested according to the guidelines set by the Pension Fund Regulatory and Development Authority (PFRDA).
The fund manager invests in a diverse portfolio. It includes government bonds, debentures, and company shares. Your money stays locked in till the age of 60. By that time, it grows due to compounding. Thus, you get a substantial corpus on retirement. You can withdraw 60% of the money and buy annuities with the rest. That will ensure a fixed income stream in your retired life.
Types of NPS accounts
Tier 1 Account
It is a non-withdrawable account. Your savings accumulate over time and get invested by the fund manager. You get the lump sum at the age of 60.
Tier 2 Account
You can voluntarily withdraw funds from this account. But you can only have a Tier 2 account when there is a Tier 1 account in your name.
Benefits of the NPS Scheme
The National Pension Scheme is one of the best pension schemes to secure your retirement life. Let’s look at its several benefits.
It is government regulated
The PFRDA regulates NPS. They monitor and review the performance of your funds. So, you can stay assured about good returns. There are also transparent norms. So you don’t have to worry about losing your hard-earned money. Since it’s government regulated, your money is comparatively safer from market fluctuations.
You get immense flexibility
You are free to allocate your funds across several assets. For instance, you can choose between shares, government bonds, and debentures. Moreover, you can choose a fund manager according to your preferences. You can switch between different fund managers.
But what if you get confused by these financial terms? Don’t worry. You can choose the auto option. That will let your fund manager decide your investment portfolio according to your age and other factors.
It is a voluntary pension scheme
You won’t have the compulsion to contribute a fixed amount every month. You can save any amount at any time according to your convenience. That means you will have complete control over your investments.
You can invest more in your NPS account if you earn a few extra bucks in one month. In contrast, you can invest less if your income drops suddenly. You can take a loan against property to deal with financial emergencies. Check out the things to remember while taking a mortgage loan.
It is simple and hassle-free
You will get a Permanent Retirement Account Number (PRAN). It is a unique identification number that will stay with you throughout your life. Your PRAN number will remain the same even if you change your fund manager.
It is portable
You can switch jobs and locations smoothly without worrying about losing your corpus. Whenever you change jobs, automatic arrangements will be made to ensure that your contributions get deposited in the same fund.
Note — Are you planning to buy a home in your new job location? Check out how you can improve your home loan eligibility.
NPS account has a low maintenance cost
Its maintenance cost is significantly lower than other investment accounts. Otherwise, a long-term investment of 30-35 years would cost you a lot, reducing your returns.
You get the benefits of compounding
Your money doesn’t sit idle. Instead, it multiplies over the years. The compounding effect grows your savings by many times. As a result, you receive a huge corpus on retirement.
Your NPS account is easy to access
You can easily open your NPS account online. After that, you’ll get a PRAN number. Using this number, you can log into your account anytime.
It lets you avail of tax benefits
Who doesn’t love to save taxes? Both salaried and self-employed people can avail of tax benefits from the NPS scheme. Let us check the details.
Salaried individuals — If you contribute 10% of your salary to NPS, you can claim tax deductions of up to Rs 1,50,000 under Section 80CCD(1). In addition, you can claim tax deductions up to Rs 50,000 under Section 80CCD1(B). This benefit is available over and above the limit of Rs 1,50,000.
Self-employed individuals — You can contribute 20% of your gross annual income to NPS and claim a deduction under Section 80CCD(1). However, there is a limit of Rs 1,50,000. Moreover, you can claim tax deductions up to Rs 50,000 under Section 80CCD(1B). That is in addition to the limit of Rs 1,50,000.
How to register for the NPS scheme?
- Visit the eNPS portal on the official website of NPS.
- Choose whether you are an ‘individual’ or ‘corporate’ subscriber.
- Select whether you are a citizen or NRI.
- Opt for either a Tier 1 account or both types of accounts (the former is mandatory).
- Enter your PAN number and choose a bank where you have an active account.
- Upload the scanned copy of your PAN card and the cancelled cheque.
- Now upload your scanned photograph and signature.
- Complete your payment
There you go. Your PRAN number will be generated.
Start contributing to the NPS scheme and keep all your worries at bay. You can contribute a fixed sum every month and watch it grow over time. By the time you retire, you won’t have to think about your daily expenses.