Expert Tips: How NPS Scheme is A Best Investment Plan

The voluntary pension scheme that is specifically designed to provide financial stability to an individual post-retirement is known as the National Pension Scheme or the NPS. 

Basic Idea On NPS

This works as a systematic savings scheme during the working period of an individual. The savings contributed is later given back to the person in the form of pension after retirement. NPS scheme was first launched in 2004 by the Government of India for the interest of government employees only post-retirement. But this system was later changed and since 2009 anyone between the age group of 18 and 65 can join this scheme and take the benefits of NPS.

Before discussing the benefits one can get from investing in this scheme, let us first talk about the few necessary NPS scheme details.

Types Of NPS Account & Contributions 

There are two types of the NPS account. The Tier I is the compulsory account and Tier II is the voluntary option.

The major difference between the two accounts is that Tier I account is where you will remain restricted until your retirement time. Once you retire, only then you will be able to withdraw the money. But there are still certain rules and restrictions that one has to obey. On the other hand, the Tier II account holder can withdraw money without any restrictions. 

Another important thing to know is that in one financial year, an individual has to make a minimum contribution of Rs. 1000.

Fund Management

The funds deposited are managed by the Pension Fund Regulatory Development Authority. Also, the HDFC Pension Management company, UTI Retirement solutions Pension Fund are in this management operations for NPS.

Why One Should Invest In NPS?

• In this scheme, the investment matures at the age of 60. But it can also be extended up to 70 years. In case the corpus is more than the amount of 2 lakh, one can withdraw the sum entire. When the limit exceeds 2 lakh pension holder needs to invest 40% of the corpus to enjoy pension benefits every month. The flexibility of choosing the annuity is a great benefit for NPS account holders.

• It is taxable and the incomes add to the tax liability of the individual post-retirement. But in case, of dividends from mutual funds, it is either tax-free completely or they are categorised into low taxation system.

• The principal of the annuity is taxed. That means an individual will pay tax on his or her own investment in the NPS. This tax is given during the contribution phase. The amount that one gets as the pension is basically equal to the saving amount that one accumulates. 

• Now NPS services can be easily accessed with the help of the one-stop NPS app available for the pension scheme subscribers. This app has made all the operations convenient and more systematic. Subscribers of NPS can know about their transaction, statements, assets, contributions made and all the necessary information. So what earlier was done traditionally is now changed to digital way. Therefore, investing is not at all difficult. 

• One can apply for this scheme in both offline and online mode. National Pension Scheme Online registration is easy and more convenient.

• No matter what pension option is chosen by an individual, the interest rate remains fixed and does not get affected by the sudden economic issues. The rate remains the same throughout the term of the scheme.

• One has to keep contributing until the age of 60 without failure to get the benefits of this scheme. In case you are contributing for 3 years at a stretch, then you can withdraw 25%. But this has to be done based on a certain purpose. The purposes are children’s education, wedding, buying a home or construction, medical treatment for family or self. This withdrawal can only be done 3 times and there should be a gap of 5 years in between. And these rules are only for Tier I account holders. 

• One may easily change the scheme or fund manager in case one finds that the operations and performance are not as per expectations. Both Tier I and Tier II pension holders can avail this option.

In terms of fixed income and security, NPS is undoubtedly, the best investment option. It is not just for your post-retirement life, but also to spread the awareness of pension schemes among many.