Want money after retirement? Here’s how National Pension Scheme will help National Pension Scheme or NPS is a government funding scheme who are looking to invest for their retirement days. Click here to know all about the NPS scheme.
The National Pension Scheme or NPS is a government-sponsored social security scheme available to all Indians seeking a low-risk investment mode for their retirement days. According to the scheme, an investor makes deposits in the NPS account regularly. Upon retirement, the investor can withdraw a part of the accrued funds. The rest is doled out to the investor as monthly pension.
The NPS had been initially launched by the Pension Fund Regulatory and Development Authority (PFRDA) for government employees but is now available to all Indians, including NRIs on a voluntary basis. It is primarily a long-term investment plan for those planning to secure their future. As the name suggests, investments mature when the account holder is 60 years old.
The NPS scheme is available to everyone, including salaried employees and those working in the unorganised sector. NPS accounts are of two types—Tier I and Tier II. The Tier I account is the default pension account created for everyone opting for the NPS scheme. One has to open the Tier I account with a minimum of Rs500. This account offers a tax benefit to the account holder. A Tier II account has to be created by the investor voluntarily with a payment of Rs250 only. This account does not offer tax benefits.
Investments in the scheme up to Rs 2 lakh are eligible for tax deductions. While investments up to Rs1.5 lakh are eligible for deductions under section 80(C) of Income Tax Act, an additional contribution of Rs50,000 can be claimed as NPS tax benefit.
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Up to 50 per cent of the contribution in NPS is invested. It can either be invested as equity, corporate debt, government securities or other investment funds. Under the NPS scheme, the investor will have the option to choose where the money is invested by designing his/ her portfolio or opt for an automatic allotment and investment of funds.
Who should invest in NPS
The NPS is a safe, low-risk investment option for anyone who wants to plan for a secure post-retirement life. The scheme is available to both salaried employees working in the private sector to those working in the unorganised sector.
Consider the scheme as a kitty where you can make deposits regularly to save a part of your income for the future. Now, this kitty not only allows the investor to make regular deposits but invests your funds in equities. So you also gain high returns on your savings.
Now, this scheme also does not allow you to withdraw your entire corpus upon retirement. It mandates you to set aside at least 40 per cent of your funds. This will be given to you in the form of monthly pensions. A regular source of income upon retirement is an added benefit in the scheme if you want to secure your future.
The scheme is meant for anyone with a low-risk appetite who wants to be prepared for his/ her old age. The scheme is also ideal for people looking to invest in schemes for tax-saving purposes. It is one of the few government-sponsored schemes that offer maximum tax benefits. Investments up to Rs2 lakh are eligible for tax deductions, unlike others where investments up to Rs1.5 lakh are eligible for deduction.
Features and benefits of NPS
As explained, the NPS is a low-risk investment option. It offers good returns and tax benefits. A portion of the investment is invested in equity, corporate debt, government securities or other investment funds. Therefore returns in NPS are higher than other schemes.
For the benefit of the investor, the scheme lets the investor choose between an Active Choice and an Auto Choice. Under the Active Choice, the investor will be in control of where his/ her money is invested. Investors can design their own portfolio and decide which areas to invest in. The scheme does not allow investors to hold multiple or joint accounts.
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