National Pension Scheme (NPS)

National Pension Scheme (NPS) – Features, Advantages & Tax Benefits

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National pension scheme or NPS as popularly known is a central government initiated program. This scheme enables employees to plan their finances better. Employees can avail the NPS scheme of private, public and government sectors. The Central government of India introduced the scheme in 2004.

Read through the article to know NPS scheme details, how to open an NPS account and National pension scheme benefits. 

What is the National pension scheme?

NPS or National Pension Scheme is a type of retirement account launched by the central government of India. This scheme is open to all earning individuals. Irrespective of their type of work, that is, salaried or self-employed the account can be opened. National pension system provides a way for employees to save some amount of money for retirement in their earning.

NPS scheme is a good investment for all earning individuals. The amount saved in the scheme also offers tax benefits, among other things.

What are the significant features of NPS schemes?

For knowing nation pension scheme details, it is necessary to understand the key features. The list of features of the scheme that enables a person to understand it better is as follows:

It offers better returns

NPS returns are best in terms of investments. This is because a portion of the sum invested goes towards equity shares. Tough equity shares do not offer guarantee returns; it is better than others. The scheme has been in working for more than 10 years. On annual National pensions, scheme returns are around 8 to 10 per cent.

Offer different types of accounts

NPS offers mainly two types of accounts, namely, Tier I and Tier II. A Tier I account acts as a pension account, and withdrawal from this account is subjected to restrictions. The latter Tier II accounts are voluntary ones; they provide easy NPS withdrawals. The account also offers liquidity of funds through investment options.

Flexibility in investment options

The two types of investment options available under the NPS scheme are Auto and Active choice. Under auto, choice investment is managed by an appointed fund manager. But in active choice, the individual can decide on asset class among the options available for investing their funds.

Withdrawal of invested amount

In an NPS account, withdrawal option is available for the individual investing funds. But this option is subjected to conditions.

  1. The scheme provides partial accessibility to the funds invested in the account for meeting emergencies.
  2. Also for partial withdrawal, the contribution has to be made for a minimum of 10 years.
  3. The last condition to be fulfilled is that there must be a gap of 5 years between two withdrawals.
  4. Tax benefits can be availed

The last and most important feature of the NPS scheme is the tax benefit. Opening an NPS account has dual benefits. It provides funds for retirement and also exempts the amount so saved from the taxes. So to sum it up it can be said that the NPS tax benefit is very advantageous.

Who is eligible to open an NPS account?

It is well known that the NPS return rate and NPS benefits are better than other schemes. But who is eligible to open the account.

The eligibility criteria for opening an NPS account is as follows:

  1. Must be a citizen of India. He can be resident or non-resident of India.
  2. The age of the applicant must be between 18 to 60 years.

How to open an NPS account?

NPS tax exemption makes it very attractive for salary employees to open it. Opening this account is simple. There are two ways to open the account online and offline.

Offline Method 

For opening the account offline by the individual, he or she must visit an institution. The institution so visited can be a bank or financial one, which offers NPS service. The banks and institutions that provide NPS accounts are called a point of presence. After visiting POP ask for an application form, fill it to open the account.

Online Method 

In contrast to visiting a POP, an NPS account can also be opened online. This method of opening an account is very convenient. For online account opening visit eNPS platform. On visiting the site, locate an NPS account opening form. Fill in details like PAN number, account details of the bank that is the Point of presence.

The best part of the NPS account opening is that it allows multiple modes of deposits.  NPS contributions online are the best among the modes of deposits available.

Similarly, for finding out NPS account balance visit the point of presence or eNPS portal.

List of documents required to open the account

NPS tax-saving feature of the account makes any person want to invest in it. Earlier we have learnt about the method of opening the account. Now let’s see what is required for opening the account.

Documents required

  1. Address proof of the applicant. This can be an Aadhar Card, Passport or bank passbook.
  2. Identity proof of the applicant. This can be a PAN card, Driver License or Voter ID card.

The above two mentioned documents submission for opening the account is mandatory. The documents are collected by the bank or financial institution to Carry the KYC process.

In addition, to the above documents, the applicant must also submit a cancelled cheque.

Is there an NPS calculator for easy understanding of the scheme?

Yes, there is an NPS calculator that provides information like interest rate and returns. NPS pension calculator is the most used online device for calculating the pension amount. As per the rules of the NPS scheme any person between the age group of 18 to 60 years can invest in the scheme. So, a Nation pension scheme calculator can be used by this individual to determine the investment amount 

How to use NPS calculator?

Whether you call it NPS pension calculator or NPS return calculator, the procedure for using them is the same. To use the calculator the person must-have information on certain things. This information includes the age of the applicant, the retirement age of the applicant. Along with this information, you need to know the amount you want to invest monthly.

The amount you invest monthly determines the returns or retirement fund. Also, it is determined by the number of years for which you want to receive the pension.

After inputting the above details, the calculator uses the principle of compounding to calculate the amount.

The interest rate of NPS account

The NPS interest rate depends on the type of account. As mentioned below, there are two types of account tier 1 and tier 2. And the interest rate of this account also varies. It is also based on the type of bonds invested in

The interest rate of tier 1

  1-year return 2-year return 3-year return
Equity bonds 3.6 9.5 8.74
Corporate bonds 13.5 9 10.34
Government bonds 20.28 10.29 11.56
Alternative Assets 9.89 NA NA

The interest rate of tier 2

  1-year return 2-year return 3-year return
Equity bonds 3.69 9.56 8.70
Corporate bonds 13.01 8.80 9.95
Government bonds 19.83 10.13 11.44

What are the benefits of NPS account?

National pension scheme benefits are as follows:

  • The NPS scheme provides best and flexible services. Under this scheme, the applicant can switch between fund managers and investment options.
  • After opening the account the applicant is given PRAN just like PAN number, which remains with them. This number is useful in tracking information like invested amount, returns etc.
  • Scheme comes with hassle-free operations. For the individual opening, an account can access it without worrying about the location.
  • Working of NPS account is transparent. On regular basis monitoring and performance review of the fund manager takes place by the NPS trust.
  • Last NPS benefit is online operation of account. Online facility of the account makes it even better to manage. With the help of eNPS, one can access the account online and make contributions to it.

Bottom Line:

With this the article on NPS detail, NPS benefits and features are concluded. The NPS a NPS withdrawal ccount is one of the best investments that are available in India for retirement purposes. The scheme is equipped with flexible account operations, convenient deposits and good returns. Toughfacility is restricted it is better than other investment plans in India.

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