The National Pension System (NPS) is an excellent investment option that ensures a steady income post-retirement, administered by the Pension Fund Regulatory and Development Authority (PFRDA).
This government scheme, launched in 2004 initially catering to government employees, has been extended to all employee categories since 2009.
NPS offers not only pension benefits but also tax-saving opportunities, making it a popular choice among investors. Let’s delve into the details of this scheme.
Types of NPS Accounts
NPS comprises two types of accounts: Tier-I and Tier-II. The Tier-I account, a retirement account, is initiated by your employer, while the Tier-II account, known as the investment account, can be opened voluntarily by any salaried individual.
Investing in NPS begins with a minimum of Rs 500 for Tier-I and Rs 1,000 for Tier-II, with no upper limit for contributions.
Eligibility to Invest
Both Indian citizens and NRIs can invest in NPS. However, if an individual changes citizenship, their NPS account will be closed, implying that only Indian nationals can participate in this scheme.
Investment Age Range
People aged between 18 and 65 years are eligible to invest in NPS, and the account can be maintained until the age of 70.
Maturity of the Scheme
Upon reaching the age of 60, NPS investors are required to opt for an annuity plan, ensuring a regular income source, with a minimum of 40 percent of their fund. The remaining 60 percent can be withdrawn as a lump sum.
Returns on Investment
NPS returns are market-driven, and recently, the Tier-I equity asset class has yielded returns ranging from 9 to 12 percent.
Premature Withdrawal and Loan Facility
NPS provides the option for premature withdrawal after a minimum of 3 years of maintaining the account. In Tier-I, early withdrawal or account closure is possible in certain situations. Tier-II allows investors to withdraw money at any time but limits the number of withdrawals to three before maturity.
Tax Benefits
Investors can claim tax deductions up to Rs 1.5 lakh under NPS. Furthermore, no taxes are imposed on the 60 percent withdrawn after maturity.
How to Open an NPS Account
Employers can facilitate the opening of a Tier-I NPS account, while Tier-II accounts can be initiated through the official NPC website.
To create an account, customers need a PAN Card and various supporting documents.
Additionally, linking the customer’s Aadhaar number to their mobile number is mandatory for opening an account online.
