NPS – National Pension Scheme India – All You Need to Know

Introduction: National Pension Scheme (NPS) is the low-cost, tax-efficient, voluntary, and defined contribution retirement savings scheme. All citizens between the age of 18 and 60, including NRIs, can apply for the exquisite National Pension Scheme plan. Designed to facilitate systematic savings during the person’s life, it is a solution to providing adequate retirement income to each and every citizen of India.

Types of National Pension Scheme

Tier-I Account

• A basic pension account with several withdrawal limitations (usually considered to be a non-withdrawal account)
• The contribution, in case of a government fund, from the employee’s side amounts to the summation of his/her 10% basic salary and dearness allowance with the exact same contribution from the employer. In government funds, the default investment is usually made in Corporate and Government bonds.
• In a non-government fund, the investor is required to pay a sum of Rs.6000 (with a choice of paying minimum Rs.500 in each installment). Here, the default investment is made in the form of stocks, corporate bonds, government funds, FDs, liquid funds, etc.

Tier-II Account

• A voluntary savings option with a limitless withdrawal option
• The initial contribution at the time of opening the account has to be Rs.1000. However, there is another plan we can be chosen by the investor which enables him/her to contribute a minimum amount of 250/- per month.
• It is mandatory to maintain a balance of Rs.2000 at the end of a fiscal or financial year.
• The investment is a combination of corporate bonds, equity, government funds, fixed deposits, liquid funds, etc.

Let us take a look at some of the features that come with applying for an NPS plan.

Features

• The National Pension Scheme (NPS) offers an extensive variety of investment options and choice of Pension Fund Manager (PFMs) to choose from in order to facilitate the growth of your initial investments.
• The subscribers can choose from 8 PMFs: ICICI Prudential Pension Fund Management Co. Ltd., HDFC Pension Management Co. Ltd., Kotak Mahindra Pension Fund Ltd., LIC Pension Fund Ltd., Reliance Capital Pension Fund Co. Ltd., SBI Pension Funds Pvt. Ltd., UTI Retirement Solutions Ltd., and Birla Sunlife Insurance Co. Ltd.
• NPS provides the subscriber with the flexibility of choosing between the active and auto choice for the distribution of his/her contribution. In the case of active distribution, the percentage of distribution among the various factors (corporate, gilt, and equity) has to be disclosed by the subscriber to facilitate the transaction.
• A unique retirement account number called PRAN (Permanent Retirement Account Number) which can is exclusive to the subscriber and can be used throughout his/her life.
• NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), therefore enhancing the reliability of the schemes and the transparency level of investment norms. This ensures regular monitoring and performance review of fund managers by the NPS trust to ensure a smooth flow of transactions.
• NPS is portable in nature, that is, it provides boundless portability across different jobs and locations, unlike other non-regulated private pension plans.

Tax Benefit of NPS: According to the Financial Bill of 2011-12, tax deduction has been permitted on contributions up to 10% of the basic salary and dearness allowance made by an employer towards the national pension scheme account. This is for above the amount of Rs.100000 and is applicable to employer’s contributions. This is the reason why NPS plans are being accepted by corporate houses widely.