4 min read
Updated on Sep 21, 2023
If you are looking for a relaxed life after retirement without the worry of income reduction, a pension scheme is definitely something you require. A pension plan limits the loss of income of individuals and allows tax benefits. NPS or National Pension System is one such pension plan introduced by the government. With NPS, a subscriber can hope to accumulate an income to maintain a smooth life post-retirement.
National Pension Scheme (NPS) is a plan under which a subscriber can accumulate a corpus to serve them during retirement.
When it comes to retirement planning, the maximum amount that you invest during your working years will generate the maximum revenue at the time of maturity. Further, you also have the tax deductions that you can enjoy under sections 80C and 80CCD.
NPS is a market-linked plan in which the account holder can contribute money until they are retired. Professional fund managers undertake the investment made in the scheme. The subscriber can contribute to the plan till their retirement age and once they are retired, 60% of the amount can be withdrawn as a lump sum, while the remaining 40% can be used as annuity for regular monthly income.
The structure of the NPS plan is such that it does not allow premature withdrawal of the fund. However, the scheme may allow partial withdrawal in case of any special circumstances.
The investor under the NPS scheme can avail the plan under two categories: Tier I account and Tier-II account.
Another feature of NPS is that it allows the subscribers to choose fund managers from among 8 options of fund managers
The NPS subscriber also has the option of type of investment strategies to choose. They can choose between two options of active vs auto. Active option is the one where investors have more control over their assets and can decide how to allocate them. On the other hand, under auto option, the investors are mostly passive users
Under NPS, the subscriber receives a unique number called Permanent Retirement Account Number (PRAN), which is a lifetime number to ensure seamless portability of the scheme.
NPS allows many National Pension Scheme benefits as mentioned below:
To Sum Up
Retirement is a time that everyone wants to spend in a stress-free way. Hence, it is important to start planning for retirement from early on in life to make it smooth and worry-free. Accordingly, it is better to start investing in the NPS scheme to avail the benefits of the plan to make sure that your life is smooth after retirement.
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Here are some of the NPS advantages:
In NPS, the Funds are managed by professionals
NPS offers high returns
It is a flexible scheme
The scheme offers low investment values
NPS is a regulated investment scheme
When it comes to the NPS benefits on retirement, it depends entirely on the sum invested and the tenure of investment. So, if you invest INR 1000/month till the age of 65 at 10% returns, then at the time of maturity you can fetch a corpus of INR 63,76,781 if the plan tenure is 40 years, with INR 12,754 as monthly pension.
NPS policy can be availed by any citizen of India between the age group of 18 to 60 years.
Yes, the NPS scheme is open for NRIs also. However, the account shall be closed if there is a change in the citizenship status.
There is no upper limit on contributions under NPS. In the case of a tier 1 account for a minimum of INR 500 per contribution, you have to invest at least INR 1000 a year. For tier II accounts, the minimum contribution stands at INR 250.
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