National Pension Scheme (NPS) is a voluntary and defined contribution pension scheme. NPS is regulated by Pension Fund Regulatory and Development Authority. The Government of India introduced the retirement-oriented National Pension System (NPS) for the common public in May 2009. NPS is a long-term investment scheme in which investors will have to invest in every year till they reach the age of 70.
In NPS, individual savings are pooled into a pension fund. The pension fund is then invested in a diversified portfolio of assets like government bonds, corporate debentures, and shares. The investments made under the scheme are market-linked, which means that money invested is allocated to market-linked funds. Evidently, these funds are used for inflation-adjusted growth of the principal amount. The returns of these investments contribute to the development of the NPS account over time.
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Investors of the NPS scheme can contribute regularly to the scheme. While having the flexibility of exiting the scheme prior to retirement. Upon maturity of the scheme, Depositors can withdraw a corpus as a lump-sum benefit.
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PFRDA has designated the post office to act as a Point of Presence (POP). The POP is a designated place from where depositors can invest in the National Pension Scheme. Accordingly, all the post offices in India serve as a POP service provider that assists people to invest in NPS scheme.
Types of National Pension Scheme Accounts
- Tier 1 account is the default account option to subscribers
- Tier 2 account is the optional account option to subscribers
The NPS is a market-linked scheme, and there is no guaranteed national pension scheme interest rate.
NPS Eligibility Requirements:
To open an account under the National Pension Scheme, the post office has specified an eligibility requirement. These requirements are as follows –
- Subscribers age will be between 18 and 65 years
- The individual should be an Indian citizen
- You should not qualify for NPS under any other sector
- One minimum contribution is important every financial year. The amount of such a contribution should be Rs.500 or above.
Features of the National Pension Scheme :
- Portability:
The NPS is a portable pension scheme. This implies that the scheme will continue if the depositor changes jobs. - Choice of Investment Option:
NPS offers a variety of investment options to subscribers like equity, corporate bonds, and government securities. Depositors can receive preferred options. - Fund Management:
NPS has a fund management system where pension fund managers manage the investment of subscribers' contributions. - Systematic Investment Plan:
NPS allows for systematic investment through monthly contributions. This feature can help subscribers build a large corpus over time. - Nomination Facility:
Subscribers under NPS can nominate a beneficiary. Additionally, senior citizens should choose this investment option owing to its low costs.
Benefits of National Pension Scheme
- Tax Benefits:
Contributions to NPS are eligible for tax benefits under Section 80C of the Income Tax Act and additional deductions under Section 80CCD (1B). - Pension Benefits
Upon retirement, subscribers can withdraw up to 60% of the corpus as a lump sum. Additionally, they can use the remaining 40% to buy an annuity, therefore this provides a regular pension income. - Market-Linked Returns
NPS invests in a mix of equities, bonds, and government securities, which provides market-linked returns to subscribers. - Annuity Options
Subscribers have the option to choose from a range of annuity plans and providers, which provides flexibility in terms of pension income.
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