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All you need to know about investing in National Pension Scheme

national pension schemeNational Pension Scheme (NPS) was started by the Government of India. The scheme is handled by the Pension Fund Regulatory and Development Authority (PFRDA). It is a retirement savings scheme where both employees and employers make a payment towards building wealth which is payable to the employee at his/her retirement. The scheme is chiefly designed to promote regular and efficient savings among employees of both central and state citizens. The scheme was launched on 1st January, 2004 with an idea of reforming pension in India, and by far, it is the least expensive market-linked pension plan available in India.

All citizens and state/ central government employees that fall between the age brackets of 18 to 60 years are qualified for investing in the National Pension Scheme. People that are already pension account holders are required to apply for a new registration under this new scheme.


How does NPS work?

Under this scheme, one can invest in diverse pension funds. The NPS offers three different types of funds wherein you can invest and get first-rate returns at retirement. In case, you don’t mention your preference or choice of fund at the time of registration, your funds will be invested in the default funds handled by the Pension Fund Regulatory and Development Authority (PFRDA). These funds are invested by Pension Fund Regulatory and Development Authority and supervised by professional fund managers.

A NPS subscriber can switch between different pension funds, but, a continual fund is a requisite for at least a year, before the subscriber switches it from one fund to another. Thus, one’s contribution to the pension scheme would only grow over the years depending on returns received from investments.

Any employee who wants to get a PRAN, which is Permanent Retirement Account Number and register for the National Pension Scheme, can give in his/her duly filled application form with all necessary documents.

Under the National Pension Scheme, a subscriber can open two accounts – Tier-I and Tier-II. Tier-I is the primary account that a subscriber needs to open to be qualified for opening a Tier- II account. The Tier- I account does not let untimely withdrawal unless it is after the attainment of 60 years. The Tier-II account allows withdrawal as and when the subscriber requires fund.


The following contributions are accepted by the National Pension Scheme:

Remember, that a subscriber needs to make a minimum contribution Rs. 6000 every year to be eligible for a Tier-I account. The lowest amount for one time contribution is Rs. 500. Likewise, for Tier-II accounts, a subscriber needs to make a minimum contribution of Rs. 2,000 yearly, and Rs. 250 at one time. A contribution can be made either via cheque or cash.


When you invest in the National Pension Scheme, these following benefits are what you reap:

1.       It is a voluntary scheme and every Indian citizen between the age group of 18 to 60 years can avail it.

2.       The scheme allows a lot of flexibility when it comes to choosing one’s investment options.

3.       One can easily switch between different investments funds.

4.       The NPS account can be managed from anywhere in India.

5.       The scheme engages transparent investment norms.

6.       It helps you with accurate retirement planning and you can be sure of receiving assured returns at retirement.

7.      One can avail tax benefits on the contribution made towards this scheme under section 80C of the Indian Income Tax Act.

8.       The subscriber has two options at the time of making a standard exit from the NPS scheme. Either, the subscriber can use the accrued pension wealth received from scheme to buy a life annuity plan from a life insurance company named under PFRDA, or withdraw a part of accrued pension in lump-sum. The NPS calculator allows one to work out the amount of pension amount they are set to receive.


In all truth, the National Pension Scheme is an effort towards finding a practical retirement solution by promoting the virtue of savings amongst common citizens and providing sufficient retirement income to every citizen of India.

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