What Is National Pension Scheme Investment?
National Pension System (NPS) is a secure Government of India-backed pension cum investment scheme devised to offer old age security to employed citizens of India and to facilitate a consistent income post-retirement.
NPS saving scheme offers a secure long-term saving avenue to a wide range of retail and institutional investors. It helps them effectively plan retirement through regulated market-based returns. The NPS investment is regulated by PFRDA Pension Fund Regulatory and Development Authority. National Pension System Trust (NPST) is the legal, registered owner of NPS asset holdings.
How Does The National Pension System Work?
- National Pension System or NPS investment plan is a financial instrument developed to encourage savings for life after retirement.
- The NPS investment options are based on a unique PRAN number (Permanent Retirement Account Number) – provided to every applicant/ subscriber. The PRAN number remains with the applicant/ subscriber throughout his/ her lifetime. A permanent retirement account number PRAN is generated and assigned to the applicant/ subscriber – only when the enrolment process is completed successfully.
- After the generation PRAN number, a thread of email alerts in conjunction with SMS alerts is sent to the registered, verified email ID and mobile number of the respective applicant by NSDL-CRA. (Here, NSDL CRA stands for Central Record Keeping Agency.)
- NPS saving schemes and investment plans allow applicants/ subscribers to accumulate a substantial corpus for old age or for life after retirement by consistently and periodically contributing towards NPS investment plans.
- Tier-1 NPS account: The applicant/ subscribers can opt for a Tier-I account which is a non-withdrawable permanent account. The periodic contributions submitted in the national pension scheme investment plan by the applicant/ subscriber are credited and invested following the fund manager’s chosen.
- Tier-2 NPS account: Alternatively, applicants/ subscribers can opt for Tier-II, a voluntary withdrawable account. The Tier-II account is accessible to subscribers of the national pension scheme investment plan with an active Tier-I account. The subscriber can withdraw funds from the Tier-II account according to their needs and future requirements.
- When the applicant/ subscriber exits from the NPS tax saving investment plan, the retirement corpus is provided to the respective applicant with a mandate. The mandate states that a pre-defined portion of the retirement corpus must be allocated to an annuity.
- Apart from NPS investment tax benefits, the annuity is also an additional benefit of the NPS plan – according to which the subscriber receives a monthly pension post-retirement.
Primary Reasons To Opt For Nps Saving Scheme Investment Plans:
- Low-cost investment product
- Access to market-linked investment options
- Save an additional 50K under Section 80CCD over and above 1.5 lac under Section 80C
- Offers attractive long-term returns
- Managed by industry experts and professional fund manager
- Numerous long-term tax-benefits
- Regulated by Government authorities – PFRDA is a structured regulatory body established through an act of Parliament.
The applicant is required to be a citizen of India. Both Resident and Non-resident Indian citizens are eligible to join NPS tax saving investment. The applicant must be within the age group of 18-70 years – as of the NPS application submission date. Non-resident Indian citizens’ monetary contributions are subject to legal, regulatory, and compliance requirements prescribed by the Reserve Bank of India (RBI) and the Foreign Exchange Management Act (FEMA). It is important to note that Overseas Citizens of India (OCI) and Person of Indian Origin (PIO) cardholders, and Hindu Undivided Family (HUFs) don’t legally meet the eligibility criteria for opening and joining NPS investment options.
Absolutely, yes. There are no provisions restricting individuals from subscribing to the best investment options in NPS and PF. On the other hand, there are provisions in place that legally recognize both the funds and allow the transfer of funds from PF to NPS. Individuals looking forward to planning retirement funds must assess a diverse range of pension fund schemes and opt for the best investment options in NPS based on one’s long-term financial objective and risk appetite. The NPS investment tax benefits are available to the subscriber only after 60 years.
The applicant/ subscriber can withdraw funds from the NPS account only after a minimum tenure of 10 years. After contributing to the NPS investment plan for a decade, the applicant/ subscriber is allowed to make a partial or certain amount of withdrawals. The applicant also has the option to exit the national pension scheme investment plan entirely. With NPS investment options, there are no restrictions imposed on fund withdrawals. However, NPS investment tax benefits and other advantages are best reaped in the long term. It is always ideal for assessing and opting for the best investment options in the NPS scheme as well as staying invested as long as possible.