Things To Know Before Investing In National Pension Scheme

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All regular working employees think about what they are going to do after retirement. Because, after the age of 65 years, people are unable to work. As a result, they want a fixed income to fulfil their daily needs. However, there is no reason to worry. It is because the government of India has a pension system known as the national pension scheme. It is a non-compulsory, fixed contribution system, which is paid back after retirement.

In essence, the NPS helps a person make systematic savings during his/her working life. You can use these savings as a regular income after retirement. Moreover, just like PPF and EPF, the 60% maturity withdrawal amount is tax-free. However, the remaining amount paid back annually is taxable as “income from other sources.”

Working Of NPS

  • The national pension scheme pools (collects) a person’s savings in a pension fund.
  • Then, professional fund managers invest these funds into various instruments such as bills, corporate shares and debentures, and government bonds. Moreover, the PFRDA (Pension Fund Regulatory and Development Authority) appoints the professionals, so your funds are in safe hands.
  • The investments then, accumulate and grow over the years, depending on the ROI (Return on Investment).

At the time of maturity, you have two options. You can either withdraw a part of the accrued pension amount as a lump-sum; Or, you can use it as a life annuity.

Annuity means that you will receive the pension as regular income from a PFRDA recognised life insurance company.

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Types Of National Pension Scheme Accounts

A person registered in the national pension scheme in India can open two types of accounts in his name. Moreover, you can open these accounts under the same PRAN (Permanent Retirement Account Number).

  • Tier I Account: If a person has Rs. 1,50,000 and above in their Tier I account, they enjoy an additional tax deduction. These tax deduction benefits are up to Rs. 50,000. However, there are a lot of terms and conditions for withdrawals. Moreover, you can only retrieve a specified amount at a time.
  • Tier II Account: A subscriber can use a Tier II account for additional investments. Also, he/she can withdraw all the accumulated amount at will.

However, there are no tax benefits in this account. Moreover, If a person does not pay the initial contribution towards his Tier II account, it gets deactivated.

Things To Know Before Investing In NPS
Things To Know Before Investing In NPS

Fund Managers Under The NPS

While planning for your future and making your money grow, you can choose from many fund managers. These are companies that help you with the whole pension process. However, the returns are based on market conditions.

Here are the names of eight fund managers from which you can choose:

  • Reliance Capital Pension Fund Ltd.
  • Birla Sunlife Pension Management Limited
  • ICICI Prudential Pension Fund Management Co. Ltd.
  • LIC Pension Fund Ltd.
  • HDFC Pension Management Co. Ltd.
  • UTI Retirement Solutions Ltd
  • Kotak Mahindra Pension Fund Ltd.
  • SBI Pension Funds Pvt. Ltd

Who Can Join the National Pension Scheme?

A person is eligible for the national scheme of pension under the following conditions:

  • A resident or non-resident citizen of India.
  • He is between 18 and 60 years of age on the date of submission of application.
  • The person is mentally sound and not on the brink of insolvency.
  • Moreover, he/she must not be a holder of an NPS account in the past
  • Also, the subscribers should satisfy their KYC (Know Your Customer) rules.
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