National Pension Scheme – Features and Benefits of NPS Account

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Retirement is a time that is supposed to be easy going and relaxing. But is it possible without a monetary back-up to pay the bills and to fulfil your needs? No! So, you definitely need a pension scheme.

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.

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What is the National Pension Scheme (NPS)?

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.

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Functioning of National Pension Scheme (NPS) – How NPS Works?

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The subscriber can contribute to the plan till their retirement age and once they are retired, 60% of the amount can be withdrawn as a lump sum, while the remaining 40% can be used as annuity for regular monthly income.

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Key Features of the National Pension Scheme (NPS)

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.

  • The Tier I account do not allow the facility of withdrawals prematurely and the amount can be withdrawn only when it matures and the exit conditions as per the scheme are carried on
  • Tier-II account allows premature withdrawal and it comes into effect once the subscriber activates the Tier I account. The subscriber can withdraw money, if necessary, from this 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.

Benefits of National Pension Scheme (NPS)

NPS allows many National Pension Scheme benefits as mentioned below:

  • Returns – A portion of the investment made under the scheme is assigned to equities, which allow higher rate of interest as compared to traditional financial plans at a rate that ranges between 9-12%.
  • Tax Benefits – A major benefit of the NPS is the tax exemption available under Section 80C of the Income Tax Act.
  • Flexibility – Another NPS account benefit is that the scheme allows the subscriber to avail a change of the fund manager if they are dissatisfied with the performance of the fund. You just need to fill a form online or offline and pay a charge to change the fund manager.
  • Risk – There is a 75% maximum equity risk exposure under the scheme at the moment. For government employees above the age of 60 the upper limit of 50% is there. Once the investor turns 50, the equity component comes down by 2.5% per year and this reduces the risk under the plan due to market instability.

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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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FAQs: National Pension Scheme, its Features & Benefits

What are the advantages of NPS?

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

How much pension will I get under NPS?

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.  

Who can avail of the benefits of the NPS?

NPS policy can be availed by any citizen of India between the age group of 18 to 60 years.

Can NRIs invest in NPS schemes?

Yes, the NPS scheme is open for NRIs also. However, the account shall be closed if there is a change in the citizenship status.

What is the minimum contribution required for NPS?

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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Mar 10, 2023
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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.

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