The thought of retiring is by no means without hiccups. You may choose to retire early, or never retire, but having some sort of a retirement corpus to fall back on serves more than one purpose. Unless you’re incredibly rich already, an ordinary citizen would benefit greatly from the national pension scheme investment (or NPS) - to tide you over during your sunset years. If you’re like me and have a hard time squirrelling away funds each month to form your own corpus, then investing in this national pension scheme may make the most sense. 

The National Pension Scheme – A Brief Overview 

The National Pension Scheme (NPS) has been designed to inculcate a habit of systematic savings among central and state government employees as well as ordinary citizens. Under this scheme, you make voluntary predetermined contributions during your working life such that you can make wise decisions regarding your future via your systematic savings. 

The Pension Fund Regulatory and Development Authority (or PFRDA) is responsible for handling this scheme which was first launched in January 2004. It presently serves as the country’s most affordable market-linked retirement plan.

Understanding the Mechanisms of the NPS

Under this scheme, you are entitled to invest in any one of the three pension funds available. Each of these funds has minor differences. However, the overarching commonality relates to the fact that they can each provide you with good returns at the time of your retirement. 

If you don’t make clear your preferred fund when you register, your money will be invested in the default funds that are the responsibility of the PFRDA. This authority not only invests in the pooled funds but ensures that professional fund managers manage them.

The amount you contribute to your pension scheme will grow over the years keeping in mind the returns drawn from investments. It is possible for all NPS subscribers to alter between the different pension funds available. That said, a subscription to a given fund must be maintained for a minimum period of one year prior to this switch can be taken.

You must submit your application form along with all the supporting documents to get a permanent retirement account number (or PRAN) and also subscribe to the national pension scheme. Under this scheme, subscribers can open two accounts which are as follows.

1. Tier I – This serves as the primary account you must open to be eligible to open a Tier II account. This account doesn’t permit premature withdrawals until you reach the age of 60.
2. Tier II – This account permits withdrawals as and when you need the money.

Investing in NPS Online

You're probably wondering how to invest in NPS online. Here are two methods you can invest in NPS online.

Smartphone App

• In order to invest in the NPS online, simply download the NPS smartphone application from the Google Play Store.
• Contribution transactions can be made without logging into this application.
• Fill out your PRAN, date of birth and captcha and click the ‘verify PRAN’ button.
• You will receive an OTP on your registered mobile number /email address
• Once you key out this OTP and your PRAN has been verified, select the account to which you wish to make a contribution, along with the amount
• Based on the contribution amount you fill out, the system will determine the amount you must pay after its added applicable charges
• Select your preferred choice of payment and after reading and accepting the declarations, proceed to pay by pressing the “make payment” button

eNPS Website

• Visit the eNPS website.
• Select the ‘contribution’ tab
• Fill out your PRAN and date of birth.
• Select the format (SMS or email) via which you wish to receive an OTP to verify your PRAN
• Fill out the captcha on display and select the ‘verify PRAN’ button such that the OTP can be sent to your SMS or email.
• Once you enter this OTP and your PRAN is verified, select the account to which you wish to make a contribution and mention the amount.
• After filling out these details, the system will determine the total amount you need to pay after applicable charges have been accounted for
• Select your preferred choice of payment and after reading and accepting the declarations, proceed to pay by pressing the “make payment” button.

Documents Needed to Be Submitted

In order to enrol in the national pension scheme, you must submit the following documents in addition to a duly filled application form. 

• Proof of Address – This could be in the form of a passport, a ration card featuring your photograph, bank passbook, PAN card and or/ an Aadhar card 
• Proof of Identity - This could be in the form of a ration card featuring your photograph, a job card issued by NREGA, a PAN card, Aadhar card, passport, water or electricity bill or bank passbook. 

Advantages Associated with the NPS Scheme

Listed below are some of the merits associated with investing in the NPS scheme

• For starters, it is the most affordable retirement plan. You are expected to pay less than 0.02 per cent of the amount you invest as annual fees.
• This scheme provides you with superior returns in comparison to traditional options. Since the funds invest in a mix of stocks and fixed deposit (or FD)-type investments, you stand to make good returns.
• The closer you reach your retirement, the fund automatically increases the extent to which your money is held in FD-like investments to reduce your exposure to risks.
• By investing in the NPS, your money is locked until you turn 60 encouraging a disciplined attitude towards investments.

Limits Imposed on Contributions

The limits imposed on Tier I and Tier II accounts are as follows.

• Tier I - You must contribute a minimum of INR 6000 each year. A one-time minimum contribution amounting to INR 500 is also needed.
• Tier II – You need to contribute a minimum of INR 2000 each year along with a minimum one-time contribution of INR 250.

Final Thoughts

The national pension scheme encourages a disciplined attitude towards investments. Further, it helps create a corpus for you to enjoy once you retire. Another way to start saving early is by investing in JARS by Fi, where you can create a goal of your own and put in money and watch it grow.

Frequently Asked Questions

What is the best way to invest in NPS?

Most people prefer to invest in the NPS online as it is a hassle-free and paperless process. Simply download the NPS smartphone application or visit the eNPS website to invest in this scheme.

Which is better, NPS or PPF?

There are upsides and shortfalls to the national pension scheme and the public provident fund. Although the latter provides fixed returns on a fixed income, NPS features an equity pension fund that can provide greater returns over the long term. That said, the PPF carries fewer risks compared to NPS holdings, which depend upon the markets. Ultimately, you should pick an investment best suited to your investor profile, financial goals and needs.

What is the interest rate of NPS SIP?

The NPS interest rate currently ranges between 9%-12%. Indian citizens between the age group of 18-60 years can subscribe to the scheme.

How can I start an SIP for NPS with SBI?

Online: Visit www.onlinesbi.com and check 'Deposit & Investment'. Offline: Visit your nearest registered State Bank of India branch for NPS and submit NPS Contribution Instruction Slip (NCIS) along with the contribution amount.