A NPS (National Pension Scheme) is a program initiate by the Government of India to provide retirement benefits to all citizens of the country, including those that work in the unorganiz sectors. Pension Fund Regulatory and Development Authority regulates and administers a national pension scheme as a define voluntary contribution scheme that is market-link and manage by professionals.
There are many different ways in which contributions made by individuals under the National Pension Scheme can be accumulate and grown until retirement. The growth of the corpus is sustained through market-linked returns. Additionally, members can opt-out of this plan before they retire or opt for superannuation as an alternative. Before investing in an NPS scheme, it is mandatory for a subscriber to fulfil CKYC requirement. CKYC means can be understood as Central Know Your Customer registry.
Types of NPS Account
Two primary categories of accounts are part of the National Pension Scheme: Tier I and Tier II. In addition, there are two types of accounts: the default account and the voluntary supplement account. PRAN offers two different types of NPS accounts, which are as follows:
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Tier-I Account
A non-withdrawable account will be set up for you in which you can save for your retirement. By Section 80C of the Income Tax Act, 1961, an investment made under this section can be deduct up to a maximum of Rs.1.5 lakh. Moreover, under Section 80CCD of the Income Tax Act, 1961, you can invest and claim a deduction of up to Rs. 50,000 if you meet the eligibility requirements.
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Tier-II Account
A voluntary retirement account that also serves as a savings account. Unless you already have a Tier I account in the NPS Scheme, you will not be able to open a Tier II account. In this account, you will always have the option of withdrawing your money whenever you wish. There is also an option in the “Auto Variety” option that allows you to invest your money automatically if you don’t want to select asset allocation.
Listed below are the benefits of the National Pension Scheme
Flexible
With National Pension Scheme, you have a wide range of investment options and a choice of Pension Funds (PFs) to manage and monitor the growth of your investments. In addition, there are several investment options for subscribers and the ability to switch between one fund manager and another if they so desire.
Portable
With National Pension Scheme, you can move seamlessly between jobs and locations across your career path. Moreover, subscribers could transfer to a new job and location without losing their corpus build, as in many pension schemes in India.
Well Regulated
The National Pension Scheme trust is responsible for ensuring the transparency of investment norms, regular monitoring of the performance of fund managers, and regular performance reviews by PFRDA. Undoubtedly, the account maintenance costs associate with National Pension Scheme are among the lowest across the globe compared to similar pension products. However, investing for a long-term goal like retirement requires considering the costs of the investment since charges can reduce the corpus over 35-40 years.
Equity allocation Rules
The investments made in the NPS are made into a different scheme. Equity allocation rules allow investors who invest in equities to allocate 50% of their investments to equity. Depending on the type of investment that you choose, there are two options available, namely active choice and automatic choice. As an active choice, the investors can select their funds and split the investment according to their risk appetite and suitability. In contrast, in the auto choice, the investment is made for the investor base on risk profile and age.
Option to choose your fund manager
Once you have started investing in the NPS scheme, you can determine where your money will go and who will manage it. In the unlikely event that you are unsatisfy with the fund manager, you can change them once a year. When you are young, you are usually more willing to take risks, seeking a higher return on your investment, as risky investments are more appealing to you, but as you age, you are less likely to take such risks. If you are not afraid of higher risks, National Pension Scheme lets you invest up to 75% of your corpus in equities if you choose to do so. On the other hand, people who want their returns risk-free can invest all of their assets in government securities.
The Government of India has launch the NPS scheme to provide financial security to elderly citizens after the retirement. The National Pension Scheme offers excellent long-term savings options for individuals who enroll in this safe market-base scheme, allowing them to plan their retirement efficiently.
