Everything you should know about National Pension Scheme!.

National Pension Scheme (NPS) is a voluntary retirement savings scheme that aids an individual to save and enjoy returns during their retirement.

National Pension Scheme (NPS) was launched to promote the security of income to pension fund subscribers in their old age. The fundamental objective of the scheme is to aid in saving for life after retirement and to provide good returns when individuals stop earning.

NPS is regulated by Pension Fund Regulatory and Development Authority (PFRDA). It is a good investment option for retirement for employees working for Government as well as private employees. Any citizen of India can subscribe to NPS be it be resident or non-resident. Applicant should be between 18-65 years of age as of the date of submission of his/her application and should comply with KYC norms prescribed. NPS is available in three approaches – Tier I, Tier II and Swavalamban Scheme. NPS is already available for government employees and now it is extended to other citizens of India with effect from May 1, 2009.

Benefits of NPS:

1. Low-Cost Structure: The primary advantage of NPS is its low-cost structure. NPS is considered the world’s lowest-cost pension scheme. Also, administrative charges and fund management fees are minimal. Along with this, one can expect better returns from the fund over a longer duration as compared to other financial investments.

2. Transparency: There is complete transparency in the charge structure and the subscriber knows exactly how much he/she is paying for what costs.

3. Simple: One can subscribe to NPS through various Point of Presence (PoP) which mostly covers banks and certain other financial entities.

4. Flexibility: NPS offers flexibility to choose options including the auto-choice that allows one to choose the investment option based on the subscriber’s age and risk appetite.

5. Tax Benefits:

• Employee’s contribution - Eligible for tax deduction up to 10% of Salary (Basic + DA) under Section 80 CCD (1) within the overall ceiling of Rs 1.50 lakh under Sec 80 CCE.

• Employer’s contribution – The employee is eligible for tax deduction up to 10% of Salary (Basic+DA) contributed by the employer under Sec 80 CCD (2) over and above the limit of Rs 1.50 lakh provided under Sec 80 CCE.

Types of Accounts:

6. Tier I: This is a non-withdrawable account in which your contributions will be deposited. For Tier I account, the minimum contribution is Rs 1000 in a year excluding charges and taxes.

7. Tier II: Tier II account is voluntary savings account in which you can deposit as well as withdraw at any point. It works like a mutual fund. However, one cannot have a Tier II account without Tier I account.

8. Swavalamban Account: This type of NPS is provided for encouraging poor workers. Under this scheme, the Government of India would pay Rs 1000 per year for the first 4 years as its contribution.

Investments:

Asset Class E: Pre-dominantly investments in equity market instruments.

Asset Class C: Investments in fixed-income instruments other than Government securities.

Asset Class G: Investments in Government securities.

Asset Class A: Investment in Alternative Investment Schemes including instruments like CMBS, MBS, REITS, AIFs, InvIts etc.