Retirement is a distant dream for our generation, no doubt. We may have to work most of our lives, but that doesn’t mean the NPS pension plan isn’t for us. With inflation on a steady rise, we’re going to need another source of income in our evening years. But hey, I don’t mean to sound so grim. I actually want to break down how the National Pension Scheme works, and for good reason. Even if you’re nowhere near retirement, there’s a whole bunch of tax-saving it can do for you. Read on:
The National Pension Scheme is an effective tool that not only helps reduce investment risk but also offers guaranteed returns. The benefits offered by this government-initiated scheme brings in many pleasant surprises. So, read on to know all about the NPS pension plan, which is way more than just a pension plan. Before you dive in, bookmark this NPS calculator for future use.
National Pension Scheme is a government scheme intended to benefit various Indians who wish to have a secured and regular income even after retirement. Would you believe if I say you can earn up to 12% returns on a secure investment? Well, if you are unaware, you may doubt it, but that's exactly what India’s National Pension Scheme has to offer.
In 2004, NPS was first launched for government employees only, but in 2009, the scheme was declared open for all. NPS is a voluntary investment plan that any citizen of India between the ages of 18 to 65 can choose to invest in. Under the Pension Fund Regulatory and Development Authority, government-approved Pension Fund Managers play a key role in managing your investments. There are four asset classes where your money gets invested. After maturity, you can enjoy a stable income and meet your financial needs and goals.
The exciting deals of the National Pension Plan are divided into two different accounts under NPS. These are known as Tier 1 and Tier 2 accounts.
Tier 1 account is the primary account that you have to open when planning to invest in the National Pension Plan. With a nominal contribution of ₹500 at the time of account opening, you can easily open a Tier 1 account and become a member of the NPS family.
Some of the striking features of this account are-
A Tier 2 account of the NPS Pension Plan is just like the school’s second grade. In order to get into second grade, you first need to clear your 1st grade. Similarly, to open a Tier 2 account, you must have a Tier 1 account. You need to make a minimum contribution of ₹1,000 while opening the account.
Given below are some important features of the NPS tier 2 Account:
Probably the second-best question after “What is the NPS pension plan?”. The eligibility for National Pension Scheme India is not a tough nut to crack. This is another reason why a majority of investors appreciate this investment plan, and it has been a preferred choice for millions of Indians.
Before we dive into more details, let's have a quick look at the eligibility criteria for NPS Pension Plan.
One question that may pop into your mind even if you fulfil the basic criteria is whether NPS investment is worth it? Well, to be fair, it differs for each person. But wait, here are some key points to tilt you in favour.
People working in the private sector or unorganised sector may not receive any pension scheme from their organisation. This is where you might need a steady flow of income post-retirement
If you are someone who wishes to abstain from participating in the unbelievable highs and unfortunate lows of the stock market, relying on the NPS pension plan can be a great deal for you. Simply put, this is a low-risk investment plan.
Not only people with a low-risk appetite, but even the ones who have a keen interest in not-too-rigid investment plans can also opt for this scheme. Who would not like to have an investment plan that does not ask for bounded commitments and is ready to offer assured returns?
Investments are not always only intended for money-making. They are also a profitable way of saving on taxes. If you don't have enough sources to save on tax, National Pension Scheme is what you can look forward to.
NPS Pension Plan can also act as the first step in your investment journey. As a beginner, you may be looking for a safe plan that also helps you build a habit of systematic savings, and NPS can be a good option in that case too.
No fixed commitments and no hefty contribution; how will the NPS Pension Plan benefit me? How can I make a profit when I am not bound to make a dedicated investment? Here's the answer to your query-
National Pension Plan gives you four broad options to invest in like-
Given that you have four options to invest in, how will you decide which one is beneficial as per your risk appetite, age, and other related factors? For this, you have two options to choose from to start your investment-
Under National Pension Scheme India, you have the freedom to be your own portfolio designer for NPS investment. Here, you will be deciding how much you want to invest in these four investment options. As per your choice, you can choose a fund manager and allocate your investment.
While the active choice may sound quite exciting as you get to design your portfolio. But wait, have you also stressed about the time it can consume? It is a good option for interested people, but for those who do not have enough knowledge or time to decide on their portfolio.
NPS Pension Plan provides you with the option of auto choice where you can leave the burden of managing your portfolio to the Pension Fund Managers, who will carefully look into your details and invest as per the best deals.
Once you have your PRAN (Permanent Retirement Account Number) with you, you can also log in to the official website of the National Pension Scheme India and manage your account within a few clicks. PRAN is a unique number that every NPS account holder is allotted at the time of Tier 1 account opening. This hassle-free feature further makes it a simple yet interesting investment option.
The thought of investing in SIPs or the intraday trade may sound quite a profitable choice, especially when you hear about the colossal profits made by the investors. But that might not be an ideal choice when you are planning your post-retirement income. Why?
In general, with age, the risk appetite reduces, and so does your time span and investment capacity. When building a pension, you cannot rely on short-term and highly volatile market-influenced investment plans. This is where you may want to resort to something safer and more stable like the NPS Pension Plan.
Here are a few benefits of having an NPS account that is too big to ignore-
If you have reached this section of the blog, you might already be thinking of investing in the NPS Pension Plan. If so, there are a few documents you must take note of before beginning the registration process, as paperwork plays a crucial role when investing.
When applying online, remember keeping your documents in jpeg, .pdf, png, or jpg format.
Opening an NPS Pension Plan account is as simple as it is investing in NPS. There are two ways in which you can open your National Pension Plan account, offline and online. As per your convenience and preference, you may choose either of the option-
The offline application process is always open for you if you wish to go by this traditional method. Do not forget to take the documents with you, so you don't have to rush at the 11th hour to get a few documents. The offline registration process is as follows-
Every investment plan is subject to a certain amount of market fluctuations and to this, NPS Pension Plan is not an exception. Though the effect of market fluctuations on NPS is quite low as compared to other investment plans, there are a few things you must know about when you are planning for investment in NPS, like-
National Pension Scheme India is a substitution for the earlier pension plans that existed for government employees in India. So, you may find it lagging in terms of profit when compared to the old pension plans.
When it comes to a Tier 1 account, you cannot withdraw any amount until it matures. Only under certain conditions lump-sum withdrawal is allowed, like-
However, to make a partial withdrawal of a Tier 1 account, the account must be at least 10 years old. Also, you only have three chances of partial withdrawal in a Tier 1 account.
As per the norms of the National Pension Scheme India, individuals can withdraw 60% of the investment upon maturity, and the rest 40% is used for the purchase of the annuity. So, the 60% withdrawal is subject to tax charges. Although the remaining 40% is not taxable, the income on annuity purchases is taxable.
One individual can have only one NPS account. So, this means one PRAN per person.
The National Pension Plan also has limits on the amount of investment one can make. This limit has been set in order to safeguard other financial requirements that an individual may have. Considering all such factors, the NPS norm says an individual cannot spend more than 50% of their income in an NPS account.
Under the National Pension Plan, individuals get four investment options (equity, government securities, corporate bonds, and alternative investment funds). This ROI is subject to market fluctuations. So, in case the market is badly hit, your returns on NPS can also be affected.
In order to grow your money, you must choose to invest in the right plan. NPS Pension Plan is undoubtedly one such option to consider. Before you begin your investment plan, it is always advised to know each detail of the investment plan and the provider. Ensure you leave no policy page unturned to avoid misunderstanding regarding the National Pension Scheme. Gather all the necessary details regarding NPS and start making post-retirement financial goals today.
National Pension Scheme India is one of the most popular, safe, and high-return investment plans. In order to get a stable income even after retirement, one can choose to invest in NPS. Also, there are no major eligibility criteria for NPS investment. Any individual above 18 years and below 60 years of age can apply.
The National Pension System India is a government scheme that lets Indians invest for a regular income after retirement. There are two types of accounts provided under NPS, and people can choose to invest as per their interest and earn a stable income after retirement.
Any Indian who is above the age of 18 years can apply for NPS. The maximum age limit for NPS registration is 60 years.
Considering the fact that the National Pension Plan involves low risk, organised norms and government rules, good returns, and flexibility of account management, it can be considered worth investing in. Like every other investment, NPS too includes some level of market risk but because it is backed by the government of India, such risks are quite low.
In simpler terms, NPS is a pension-specific scheme while PPF is not pension-specific. In the table given below, you can get a clear idea of the difference between PPF and NPS.