Opening a National Pension Scheme (NPS) account offers numerous benefits for individuals looking to secure their financial future. The National Pension Scheme is a government-backed retirement savings scheme in India designed to provide long-term financial stability. It encourages regular savings during one’s working life, helping to build a substantial retirement corpus. Some of the key advantages of an NPS account include tax benefits, flexible investment options, low management costs, and the ability to choose your investment strategy. By investing in the National Pension Scheme open account, individuals can ensure a steady income post-retirement, making it a reliable and efficient way to plan for a comfortable and secure future.
Here we discuss the benefits of NPS in detail.
What is the National Pension Scheme?
National Pension Scheme (NPS), is a PFRDA-regulated investment option designed for all Indian citizens between 18 and 70 years of age. Whether you are an individual or a government or private sector employee, you can invest a portion of your income in the NPS account at regular intervals.
As time passes, you build a financial corpus, 60% of which you can withdraw in a lump sum at retirement. Purchase an annuity with the remaining 40% and earn a regular monthly pension with its returns. The best thing is that you can choose the amount and frequency of investments as per your financial capacity and retirement goals.
Understanding the Two Types of NPS Accounts
There are two types of National Pension Scheme open account options: Tier I and Tier II. The NPS scheme benefits vary based on the account type you own. Firstly, let’s understand the two types of NPS accounts you may choose:
| Parameter | Tier I NPS Account | Tier II NPS Account |
| Eligibility | Any Indian citizen between 18 and 70 years of age | Tier I NPS account holders |
| Minimum Amount to Start Investing | Rs. 500 | Rs. 1000 |
| Lock-in Period | Until retirement | No lock-in period |
| Withdrawal | Withdrawal is not allowed for the first three years. After that, you can withdraw 25% of the fund for specific reasons. | Withdrawal rules are flexible, as you can withdraw at any time. |
| EPF Transfer | EPF funds are transferable to the NPS account | Funds transfer is not permitted |
Benefits of NPS Investment
NPS is a systematic savings scheme for retirement planning. It encourages the habit of retirement from a young age. Above all, the scheme provides multiple benefits, making it a popular investment product among investors. These include the following:
- Low-Risk Investment Option: NPS is a low-risk option compared to many other investment schemes. Since it is a government-owned scheme, the risk is capped at 50-75% on equities. Investors aged 50 have a 75% risk exposure, which decreases by 2.5% by the age of 60. This exposure to equity generates high returns with a limited risk level.
- Source of Income for Life: At retirement, your source of income stops, but regular expenses don’t. Furthermore, growing inflation significantly impacts different aspects of your life. So, a regular income stream is necessary to maintain the desired lifestyle. The NPS scheme offers a pension through annuity purchases for your entire retirement life. It works as a saviour during times when financial support is essential.
- Flexible Fund Allocation: The NPS scheme allows you to design the fund portfolio according to your convenience. Considering your risk appetite, you can allocate funds among various asset classes, including government securities, equities, bonds, and corporate funds. Moreover, you can re-arrange the fund allocation at any point in time whenever you feel the fund is not performing as expected.
- Guaranteed Returns: Although some of the NPS funds go to equities that do not offer assured returns, the overall NPS returns are guaranteed. Consequently, the total returns offered by the NPS scheme are higher than those offered by other retirement planning options like fixed deposits and PPF.
- Affordable Investment: The National Pension Scheme open account is a low-cost investment option with higher returns and benefits. Moreover, the contribution requirements are minimal with lots of flexibility. With regular investment, you can earn considerable returns by retirement due to the scheme’s compounding interest feature.
Tax Saving Benefits of the National Pension Scheme
The NPS scheme offers several NPS tax benefits under various sections of the Income Tax Act. These include the following:
- Section 80C and 80CCD (1): The section offers a tax deduction of up to Rs. 1.5 Lakh each year on NPS investment, including the tax benefits on PFs, PPFs, NSCs, and other instruments under section 80C.
- Section 80CCD (1B): The section offers an additional tax deduction of up to Rs. 50,000 each year on NPS investment.
- Section 80CCD (2): The section offers tax deductions on the employer’s contribution to the subscriber’s NPS account.
How to Open an NPS account?
You can open an NPS account in two ways:
Through the Mobile App:
- Download and log in to the app.
- Click ‘Invest and Insure’.
- Click ‘Instant NPS’.
- Fill in the required details, including investment, personal, and nominee details.
- Upload your photo and signature.
- Confirm the details and submit.
Through Net Banking:
- Login to your Net banking account.
- Click ‘Investments and Insurance’.
- Click ‘National Pension System’.
- Fill in the required details, including investment, personal, and nominee details.
- Upload your photo and signature.
- Confirm the details and submit.
Eventually, you will receive an acknowledgement, including your PRAN (Permanent Retirement Account Number). Once the account is active, you can log in to your Net banking account, open the NPS section, and click ‘Make Contribution’ to make NPS contributions whenever you want.
Your retirement life depends on how well you prepare for it. You need a strong investment portfolio to ensure financial security in your golden years. NPS is one of the best retirement planning options offering assured returns, regular pension, and tax benefits.
