Exploring the Benefits of NPS Investments

Introduced by the Indian government, the National Pension System (NPS) is a voluntary scheme for retirement savings. With regular contributions at your desired amount and frequency, you can build a corpus until you reach retirement age. You can withdraw 60% of the accumulated corpus at retirement as a lump sum (tax-free) and invest the remaining 40% in annuity (without 18% GST). It is a pension plan that provides a regular income stream post-retirement for life. The unique features of NPS make it one of the best pension plans in the country. 

Below, we will explore the benefits of NPS investments.

  1. Relaxed Eligibility Criteria: Unlike other pension and investment plans, NPS has relaxed eligibility criteria for NPS registration. Any Indian citizen from 18 to 70 years old can start investing in the scheme. However, the scheme is also available for NRIs for investment.
  2. Multiple Types of NPS Accounts: You can open two types of NPS accounts – Tier-I and Tier-II. The Tier-I account is a basic and mandatory account with restrictions on withdrawals. Meanwhile, Tier-II is an optional account only Tier-I account holders can open. It has no withdrawal-related limits, enabling you to withdraw funds as and when required. However, the benefits are less with a Tier-II NPS account.
  3. Minimum NPS Contribution Limits: The NPS scheme has certain limits to the minimum contributions you must follow, depending on the type of NPS account you open. For instance, the minimum contribution for a Tier-I NPS Account is RS. 500, while it is Rs. 1,000 for a Tier-II NPS Account at the time of account opening. The minimum NPS contribution limit per transaction is Rs. 500 for a Tier-I account and Rs. 250 for a Tier-II account. With a Tier-I account, you must contribute a minimum of Rs. 1,000 at least once a year. With a Tier-II account, no such limits are applicable. With such low NPS contribution limits, you can retain your NPS account even during a financial crunch.
  4. Flexible Contributions: NPS provides the flexibility to choose the frequency of your contributions. You can opt for a scheme with your desired frequency, ranging from monthly and quarterly to annual.
  5. Multiple Investment Choices: NPS allows you to select the type of asset class you wish to invest in, from debt and equity funds. You can choose one according to your risk appetite and investment goals. 
  6. Partial Withdrawals: With a Tier-I NPS account, you can partially withdraw funds after completing ten years of account opening. You can partially withdraw up to 25% of the accumulated wealth (tax-free).
  7. Freedom to Change Investment Options: NPS allows you to change your investment fund anytime during the investment horizon. This is a unique ability that comes in handy during tough market conditions. For instance, you can quickly switch from equity to debt funds to nullify the risk and save your capital. 
  8. Compounding Effect: With regular contributions to the NPS account until retirement, you benefit from the compounding effect and build a corpus.
  9. Easy Access: After NPS registration, you receive a login ID and password. You may use these credentials to log into your NPS account online and manage the investments.
  10. Oversight and Transparency: The Pension Fund Regulatory and Development Authority (PFRDA) regulates and manages the National Pension System. The government body safeguards the investors’ interests by ensuring compliance and transparency to all applicable investment norms and guidelines.
  11. Tax Benefits: Contributions to the NPS Tier-I account are eligible for tax benefits under section 80C of the Income Tax Act, 1961. You can claim a tax deduction of up to Rs. 1.5 Lakh per year. An additional deduction of Rs. 50,000 is also applicable under section 80CCD (1B) according to the old tax regime.
  12. Annuity: Annuity is a pension type where the pensioner receives a fixed monthly income according to the plan’s terms and conditions. It assures a regular income stream for life after retirement.

All these benefits make the National Pension System an attractive long-term option for retirement savings. Consider diversifying your retirement portfolio with various financial products to maximise returns. Moreover, use an NPS calculator to calculate your returns and adjust your investments accordingly. Check eligibility and apply for NPS registration now because the earlier you start investing, the higher the returns.

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