National Pension Scheme (NPS)

NPS was first Introduced in 2004 for govt employees. Later in 2009 it was made available for all indian residents with the main objective of saving for your own retirement.

Just like SEBI is the regulatory authority for Stock Markets and RBI is for banks, 

PFRDA (Pension fund regulatory & development authority) is the regulatory authority for NPS.

 

The main reason why NPS was introduced by Central Government is :

  • Disciplined saving habit in working years
  • Goal based investment for retirement
  • Sufficient retirement corpus so that you need not depend on anyone

 

There are some rules for account opening in NPS. They are:

  • Only resident individuals or NRI can open the NPS account
  • One individual can have only one NPS account
  • Joint NPS accounts are not allowed

 

Types of accounts in National Pension Scheme (NPS)

 

Tier I (purely retirement purpose) and Tier II (for investment purposes) – The main difference between the two accounts is that in a Tier II account there is no lock-in period and also no tax benefits just like a Tier I account.

You will get the tax deduction under section 80ccd upto 50000.

 

There are various pension fund schemes registered under PFRDA. And, at the time of investment you can choose under which funds your money should be invested.

 

Following is the list of funds:

 

 For government sector – LIC pension funds, SBI pension funds, UTI retirement pension fund

 

For Private sector – HDFC Pension management, ICICI Prudential Pension fund management, Kotak Mahindra Pension Fund, Aditya Birla Sun Life Pension management, LIC Pension funds, SBI Pension funds, UTI Retirement Pension fund 

 

You can also switch the opted pension funds, once in a year.

 

Where do these pension funds invest your money in?

It get invested on 4 asset classes:

  • Equity
  • Corporate Bonds
  • Government Securities
  • Alternate Investment

 

Here also you can choose what percentage of your money should get invested in various asset classes. 

 

This choice is given in two ways:

 

  • Active choice – You can choose by yourself where and what percentage of money you want to allocate in equity, corporate bonds, govt securities or alternative investment (subject to certain terms) 

 

  • Auto choice – Here, you need to choose between 3 options – aggressive, moderate, conservative 

You can switch between the two choices twice in a financial year.

 

Withdrawal options under National Pension Scheme (NPS)

  • Lumpsum
  • Annuity (regular withdrawal)
  • Partly lump sum and partly annuity

 

Withdrawal Rules

 

If Exit before 60 yrs, then

  • Should have completed 10 yrs of investment
  • 20% of corpus can be withdrawn in lump sum

 

If Exit After 60yrs, then

  • 60% of corpus can be withdrawn in lump sum

 

If Partial withdrawal is required, then

  • At Least 3 yrs of investment should have been completed
  • Upto 25% can be withdrawal
  • Maximum 3 times withdrawal is allowed

 

Why invest in NPS ?

 

As compared to PPF, EPF and FDs you get higher returns in NPS due to the investment in equity component.

Also, you can get upto 2 Lac of tax benefits from NPS investment.

(upto 1.5 lakh under 80c, additional 50,000 for business persons under 80ccd(1B).

If your employer also contributes towards NPS then, you can claim tax dedication of additional 10% on your basic salary under section 80ccd(2)

 

To know more or invest in NPS feel free to contact us.