Advantages and Disadvantages of National Pension Scheme (NPS) Scheme


5 min read

Updated on May 05, 2023

The National Pension Scheme (NPS) is a plan introduced by the Government of India. The scheme offers high interest rate and good return on investment to safeguard the interest of the policyholders. 

NPS is a pension saving scheme with defined contributions and is designed to offer systematic savings over a long period of time. National Pension System scheme is governed by Pension Fund Regulatory and Development Authority (PFRDA) of India.

The scheme inspires working individuals to invest regularly in a pension account, to allow them to withdraw a certain amount of accumulated sum once they are retired. The remaining sum is offered as a monthly pension to the retiree.

In this post, we will discuss the pros and cons and other NPS scheme details to help you understand the plan better.

Pros of NPS Scheme – Top 9 Advantages and Benefits of NPS

Here are some pros of National Pension System accounts as mentioned below for you to see if the account suits your appetite.

  1. Good NPS Fund Managers – The best thing about NPS is that the funds under the scheme are invested by able and qualified fund managers. These fund managers are controlled by Pension Fund Regulatory and Development Authority (PFRDA).
  2. Good Returns – The NPS Tier 2 account allows good and high returns, which accumulates in its long tenure to allow the investor a substantial amount of investment at retirement. NPS Tier 1 funds are also used as pension amounts. A major chunk of NPS investment is invested in the equity market that allows much higher returns as compared to EPF.
  3. Low Investment Cost – NPS Tier 1 account needs just INR 500 as a minimum investment amount to open the account. On the other hand, the Tier 2 account requires INR 1000 as the minimum investment amount to open the account. The account holder can deposit the amount via cash, cheque etc.
  4. Easy Paperwork – The NPS do not require any complicated process to enter the scheme. An interested individual can enter the scheme easily through several avenues such as online option of NPS CRA Login page or via the manual process of collecting NPS form and submitting papers like address and identity proof.
  5. Greater Coverage – NPS scheme allows the participation of all Indian citizens as well as NRIs to invest in the scheme. The age group of eligible candidates include 18 to 60 years since it is a pension plan.
  6. Better Regulations to Ensure Investment Safety – NPS schemes offer secured investment options through good regulations. Thus, it allows the subscriber to enjoy better and safe returns.
  7. Easy Access – The interested individual can visit any nearby branch of a public or private sector bank to apply in the NPS account. Also, it can be done online via the NPS CRA login.
  8. Portability – NPS is a portable scheme that continues to stay active even if the policyholder changes their job, city etc. The PRAN number and the NPS CRA login credentials stay active.
  9. Tax benefits – NPS account allows tax exemption under section 80CCD (1B) and under section 80C for salaried individuals. Also, up to 10% of basic salary along with dearness allowance can be claimed by a salaried individual among others.

Even self-employed account holders can claim tax exemption similar to that of salaried people under section 80CCD (1B) and under section 80C. They can also invest over 20% of their gross annual income to claim tax exemption under section 80CCD (1).

Visual Stories by PayBima

Cons of NPS Scheme – 6 Disadvantages and Cons of NPS

There are some disadvantages of National Pension System  scheme as mentioned below:

  1. Limits on amount withdrawal – NPS comes with a lock-in period. Further, there are restrictions on the withdrawal from the pension amount. In fact, NPS restricts any kind of withdrawals until the policyholder reaches 60 years of age.  The NPS account holder can make the first withdrawal from the account after 10 active years of the account. They are allowed a maximum of 3 withdrawals until they reach 60 years of age. Also, the withdrawal amount of the account cannot be more than the entire sum contributed by the subscriber.
  2. Taxation at maturity – The corpus received at maturity that is used by the NPS account holder for buying an annuity is taxable under this plan. The government of India levies tax on 60% of NPS investment, while the remaining 40% escapes the taxation amount.
  3. Restrictions while opening account – Only one NPS account can be opened by a single individual using the credentials of NPS CRA login.
  4. Annuity is Mandatory – NPS account restricts the withdrawal of account holders from Tier 1, which is the main account for savings for pension. Further, during maturity the NPS account allows the withdrawal of 60% of the funds, while the rest of the 40% is used to buy the annuity.
  5. Lock-in Period of NPS – Being a pension plan, the lock-in period under NPS is till your retirement age, which is 60 years.
  6. Complexity of opting for the Best Fund Manager for NPS – There are many people who are unaware of the terms related to securities, equities, debt etc. And thus, these people fail to choose the best NPS fund manager for their NPS investments.

Term Insurance from PayBima

Top General Insurance Companies in India

Top 11 NPS Fund Managers in India 2023

It is important to choose a good NPS fund manager for investment in your NPS account. Below are the NPS fund managers which can be considered for best NPS funds:

  1. Axis Asset Management
  2. SBI Pension Fund
  3. HDFC Pension Management
  4. Aditya Birla Sun Life Pension Management
  5. LIC Pension Fund
  6. ICICI Prudential Pension Fund Management
  7. DSP Investment Managers
  8. Max Life Pensions
  9. Kotak Mahindra Pension Fund
  10. Tata Pension Funds
  11. UTI Retirement Solutions

Related Articles by PayBima

Found this post informational?

Browse PayBima Blogs to read interesting posts related to Health Insurance, Car Insurance, Bike Insurance, Term Life Insurance, and Investment section. You can visit PayBima to Buy Insurance Online.

Also, check out the PayBima’s Guide and Glossary section –



View this post on Instagram


A post shared by paybima (@paybima)

FAQs: Advantages and Disadvantages of the National Pension Scheme (NPS) Scheme

Is NPS a good investment?

Yes, NPS does make for a good retirement savings scheme and worth investing. Though, it may not be the best scheme to invest in if you aim to save for some specific purposes like children's education, marriage etc. However, for other needs, a PPF serves as the best scheme of investment.

Can I have both PPF and NPS?

Yes, you can invest in both NPS and PPF. 

What is the best age to invest in NPS?

Any Indian citizen in the age group of 18-60 years can open an NPS account.

Can I exit NPS after 4 years?

Normal exit is allowed after completion of 3 years of NPS scheme.

Can I close NPS after 10 years?

If you do not wish to continue your NPS account or defer your withdrawal, you can exit from NPS anytime.

Other Investment Products

Mar 27, 2023
Author Bio
Author Image

PayBima Team
PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.

Related Blogs

Would love to hear from you

Share your candid feedback. Your email address won’t be published, we promise!

All fields are required

Find your suitable insurance plan

Speak to our advisor

Corporate Office : Mahindra Insurance Brokers Ltd ( A Mahindra Group Company ) Sadhana House, Ground Floor, 570 P. B. Marg, Behind Mahindra Towers, Worli, Mumbai 400018.

Licenced by IRDAI License No. 261; License Validity : 17-05-2025; Category : Composite Broker; CIN : U65990MH1987PLCO42609 Member of Insurance Brokers Association of India (IBAI).

Insurance is the subject matter of solicitation.

For a seamless experience, use the latest version of Chrome/Firefox/Internet Explorer.

Copyright © 2023 Mahindra Insurance Brokers. All Right Reserved.

Get A Call Back
Get A Call Back