National Pension Scheme (NPS) is a saving scheme used to provide steady income at the time of post-retirement. It comes with an interest rate of 9%-14%. It doesn’t have a fixed interest rate. People between the age of 18 and 60 are eligible to open the National Pension Scheme (NPS). The tenure of the National savings scheme gets completed at the age of 60.
The 40% of the invested amount will be used for the purchase of an annuity. By purchasing this annuity you can receive a sum of money every month. All the employees who work under the public sector, private sector, and even from the unorganized sector can apply for the national pension scheme.
1) What is a National Pension Scheme (NPS)?
National Pension Scheme (NPS) which is also known as the national pension system was introduced in the year of 2004 by the Pension Fund Regulatory and Development Authority of India (PFRDA) for the well-being of retired persons during the post-retirement. The main motto of this is to provide financial security for senior citizens.
Generally, the account holders should need to make a minimum deposit of Rs.6000. This can be done in a lump sum or by monthly installments. As said earlier the scheme tenure was up to the age of 60. If you wish to extend then it will be extended up to 70 years. At present, the interest rate of the NPS account lies between 8%-10%.
2) Why National Pension Scheme (NPS)?
National Pension Scheme has the highest interest rate comparing to other pension schemes in the market. Usually, it doesn’t have a fixed interest so that the return will directly depend upon the market value. This means that you can get a higher return when the market value is at a peak.
At the same, you won’t have a great loss on another hand as it is a central government-backed scheme. Though it depends on market value PFRDA regulates it as a less risky pension investment option. After the deposition of a certain sum, the money got invested in equity funds, debt funds, and government bonds, etc…
Generally, this will yield the highest return than other schemes like the Public provident fund, the National savings certificate, and the Senior citizen savings scheme (SCSS). You can also make partial withdrawal up to 25% of your total sum after the 3 years from the date of account opening. This withdrawal of money is permitted only in certain cases like pursuing children’s education or any critical illness.
2.1) The key reason to choose NPS
- It has a tax exemption feature
- Investing in debt, equity, and security funds would provide a good return
- Mainly useful in the period of retirement
- You can enjoy the benefits of a regular annuity after the maturity period.
These are some of the primary reasons that insist NPS is one of the best pension tools for senior citizens.
3) What are the eligibility criteria to open a national pension scheme (NPS)?
To open a National Service Pension account the person should need to match certain eligibility criteria. They are
- If you are an Indian you can open an NPS account
- The minimum age to open an NPS account is of 18 years and that the maximum age is 60.
- As only one NPS account is allowed for a person, you should not possess any other NPS account.
- While in other schemes like PPF, NSC, and SCSS NRI are not eligible to apply for those schemes. But in this scheme, NRI is eligible to open an NPS account.
- If you are an NRI then the contributions that were made for the NPS account should come to them only NRE or NRO account. No other modes are allowed for NRI’s
- If you are categorized under POI and OCI, then you are not eligible to open an NPS account.
If you have passed all these criteria then you are eligible to open an NPS account.
4) How to open an NPS account?
As said earlier Pension Fund Regulatory and Development Authority of India is the regulating authority of this NPS savings scheme. You can open an NPS account either online or through an offline process.
4.1) Providers of NPS account
Generally, there are nearly 8 NPS account providers in India. They are
- Aditya Birla Sunlife Pension management
- HDFC Pension Management Company Limited
- UTI Retirement Solutions Limited
- SBI Pension Funds Private Limited
- ICICI Prudential Pension Funds Management Company Limited
- Reliance Pension Fund
- Kotak Mahindra Pension Fund Limited
- LIC Pension Fund Limited
4.2) Opening of NPS account online
An individual can easily open an NPS account online. Generally, for this, you need to link your Aadhar card, PAN card, and mobile number. Follow the below-mentioned steps to open an NPS account online
- First search for the official website of the National Pension System Trust. Then click on the website
- Choose your residential status. It includes Indian and NRI. so choose accordingly
- Select the tier-I account. You can also select both tier-I and Tier-II accounts as per your needs.
- Enter your PAN number and Aadhar number.
- Choose your POP or the desired bank
- Enter your mobile no and proceed to get the OTP
- Then enter the bank details and nominee details
- After the successful completion of registration, you are allocated with Permanent Retirement Allotment Number (PRAN)
- Then you are subjected to a payment gateway. After the successful completion of payment, your PRAN number will be generated.
By following these steps you can open your NPS account successfully.
4.3) Opening of NPS account offline
Follow the below-mentioned steps to open an NPS account offline.
- While opening the account offline initially you need to find out the Point OF Presence (POP)
- Then you need to get the subscriber form from the POP. fill in the form by providing necessary details
- Attach the required documents needed for KYC verification. Submit it to the NPS account provider
- When you have made an initial investment POP will provide you with the PRAN number
- While opening the NPS account offline you will be charged Rs.125 as one-time registration fees.
The above process and methods are applicable to Indian residents. If you are an NRI then there should be additional verification steps for opening the NPS account.
- You need to provide the status of your bank account, whether it is repatriable or non-repatriable
- Being an NRI you need to submit the NRE or NRO bank account details attached with your passport
- Then you are asked to provide the e-sign. You can choose this option from E-sign/Print and on the courier page
- After receiving the OTP on your mobile that gets linked with your aadhaar card, your registration process gets completed
- An additional charge applies to the NRI’s for the e-sign facility.
In these ways, the NPS account can be opened in various ways.
5) What are the different types of National Pension Scheme (NPS) accounts?
Generally, in an NPS account, there are two types of account namely
- Tier-I account
- Tier-II account
If you need to open an NPS account then the tier-I account is mandatory. While if you are choosing a tier-II account, you need to select a tier-I account as it is a primary account. If you need to enjoy the liquidity, then you need to choose one account.
5.1) Tier-I account
Tier-I account comes with the following benefits
- This account is treated as a pension account
- Here you can’t withdraw your amount as per your wish. They are subjected to certain limitations
- Also, The minimum amount required to deposit in a Tier-I account is Rs.500.
5.2) Tier-II account
Tier-II account comes with the following benefits
- This account is treated as a volunteer account
- Liquidity of funds can be offered through investments and withdrawals
- In this account, the minimum deposit needed to open is Rs.250 rupees.
- You can open a Tier-II account only when the tier-I account is active.
6) How National Pension Scheme (NPS) works?
First, you need to choose a fund manager for your NPS account. As said earlier there are 7 fund managers approved by PFRDA. Then the investment is being invested in three types of funds. Based on the account holder charge split-up of the amount in desired funds can be made.
The maximum deposit in equity funds will be 50% and the remaining 50% can be invested in Bonds issued by the State government, PSU, and Private firms. And in the Bonds issued by the Central Government.
Let us assume you are opening an NPS account at the age of 35. Here your amount got invested 50% in equity funds and 50% in debt funds. At the age of 55, this investment would be 10% in equity and 90% in debt funds. This shows that if the age increases funds will be inclined towards debt funds.
7) What is the interest rate of NPS?
As mentioned earlier the interest rate of NPS lies between 9%-12%. here Interest rate depends upon the type of scheme and the subscriber of the scheme. While comparing with either scheme NPS will provide high returns. But in other schemes like PPF, NSC, and SCSS comes with market-free risk and fixed interest.
With the help of the NPS calculator, you can easily compute the interest, balance, and lump sum of returns with ease.
8) What are the unique benefits of the National Pension Scheme (NPS)?
National Pension Scheme comes with a lot of benefits and features as mentioned below.
8.1) Tax exemptions of NPS
The amount invested by employer and employee and employer will be applicable to tax exemption. Under the tax act of section 80C, the amount earned up to Rs.1.5 lakh incomes under tax exemption.
However, after the maturity period, you can withdraw up to 60% of your savings. Out of 60%, 20% will be subjected to tax-deductible.
8.2) Premature withdrawal
Generally, a partial withdrawal of 25% of the amount can be made after 3 years from the date of account opening. You can make partial withdrawals 3 times within the tenure in the intervals of 5 years. All these processes can be done only in the tier-I accounts and not in the tier-II accounts.
8.3) Regular annuity
After the completion of tenure, you are allowed to withdraw only 60% of the amount. The remaining 405 will be kept in the account to provide a regular annuity by the PFRDA insurance firm.
NPS scheme offers flexibility for the account holders to choose their investment option. This scheme includes transparent investment options and reliability to the account holders. There are two modes of investing namely
- Auto choice
- Manual choice
Here the investments are managed and invested by fund managers as per the profile of account holders. The account holder doesn’t have the control to tell where they want to invest his/her funds.
Here the funds can’t be invested by fund managers without the concern of the account holder. The account holder has an option to tell where his funds are to be invested.
Hereby concluding that National Pension Scheme provides better returns with less maintenance. Though it involves some risk, you can feel safe investing in an NPS account as it is a government-backed scheme. If you need to meet your expenses after retirement then the NPS savings scheme will be best suited for you.
No, for one person one NPS will be permitted. There will be no more need of opening multiple NPS accounts. As you can transfer your account, even you can change your fund manager if you wish.
No, not all the banks in the nation serve as Point of Presence (POP). to find whether your bank is a POP go to the official website of NPS then check whether your bank is on the list of fund managers approved by PFRDA.