National Pension Scheme (NPS) was launched in January 2004 for government employees (except for armed forces) which is a central government sponsored pension scheme.
It brings an attractive long-term saving plan to investor’s retirement through the safe and regulated market-based return.
On retirement, investors can redeem a part of the collections in a lump sum and use the remaining to secure a regular income after retirement.
The scheme allows investors to contribute regularly pension in their account during their daily lifestyle.
The National Pension Scheme is regulated by Pension Fund Regulatory and Development Authority (PFRDA). It’s based on a unique Permanent Retirement Account Number (PRAN) that is allotted to each investor upon joining NPS.
Who should invest in the National Pension Scheme (NPS)?
Any Indian citizen or NRI can join the National Pension Scheme (NPS). But the age of investors must be in between 18 to 60 years.
In the case of Indian citizens, investors must adhere to know your customer (KYC) norms. Whereas the other side in the case of NRI the account will be closed if there is a change in the citizenship status of the NRI.
How to open an NPS account?
1. Offline Process
To open an NPS account offline or manually, an investor should open an NPS account with entities known as Point of Presence (POP). Some banks, both private and public sector, can be enrolled as POPs.
Collect and submit a subscriber form along with the KYC documents at the nearest POP. Once subscribers make the initial investment that is not less than ₹250 monthly or ₹1,000 annually).
Thereafter, the POP will send to the subscriber a PRAN (Permanent Retirement Account Number), which you can use for the NPS login. There is a one-time registration fee of ₹125 for this process.
2. Online Process
To opening an account online within half an hour (https://enps.nsdl.com/) is easy, if subscribers link their account to their PAN/Aadhar and/or mobile number than subscribers can validate the registration using the OTP sent to investor’s mobile.
How does the National Pension Scheme (NPS) work?
Opening an account with NPS provides a Permanent Retirement Account Number (PRAN), which is a unique number that remains with the subscriber throughout his lifetime.
The scheme is structured into two tiers:
Tier-I account: This is the non-withdrawable permanent retirement account under which the deposited and invested as per the option of the subscriber.
Tier-II account: This is a voluntary withdrawable account but it is allowed only that case when there is an active Tier I account in the name of the subscriber.
Subscriber can claim for withdrawals as per their needs from this account.
Benefits of National Pension Scheme (NPS)
1. Flexibility- Subscribers can switch over from one investment option to another or from one fund manager to another easily.
Because NPS offers a range of investment options and choice of Pension Funds for planning the growth of the investments in a reasonable manner and as well monitor the growth of the pension collection.
2. Simple – Opening an account with NPS is a very simple process. It provides a Permanent Retirement Account Number (PRAN), which is a unique number and it remains with the subscriber throughout his lifetime.
3. Portable- NPS provides seamless portability across jobs and across locations. It would provide a hassle-free arrangement for the individual subscribers while he/she shifts to the new job/location, without leaving behind the corpus build, as happens in many pension schemes in India.
4. Systematic Regulated- NPS is well regulated by PFRDA, with regular monitoring and performance review of fund managers of NPS Trust.
The account maintenance costs under NPS are the minimum as compared to similar other pension products
5. The dual benefit of Low Cost and Power of compounding: under NPS, pension wealth accumulation grows over the period of time with a compounding effect, till the retirement. The account maintenance charges being low, the benefit of accumulated pension wealth to the subscriber becomes large.
6. Ease of Access: The NPS account is manageable online. An NPS account can be opened through the eNPS portal.
7. Early Withdrawal and Exit rules: As a pension scheme, it is important for subscribers to continue investing until the age of 60. However, if they have been investing for at least 3 years, they may withdraw up to 25% for certain purposes.
These include children’s wedding or higher studies or for any other personal use. Subscribers can make a withdrawal for up to 3 times (with a gap of 5 years) in the entire tenure.
8. Tax benefit: With the investment in NPS, an investor can enjoy tax benefits under Section 80C and Section 80CCD of the Income Tax Act, 1961.