Are you concerned about retirement planning? Do you want to ensure you can get a decent monthly income, enabling you to live a financially secured post-retirement life? If you are, then you should opt for the National Pension Scheme. A retirement planning-cum-tax saving initiative of the Central Government, NPS is a voluntary contributory pension scheme. The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) to promote old age income security. NPS is a market-linked product that allows you to create your retirement corpus and flexibly choose from various asset classes and invest in annuity plans
NPS ACCOUNT TYPES AND FEATURES
- Under the NPS Scheme, you can open two types of accounts; Tier I and Tier II accounts.
- Tier I account is the primary account and mandatory for anyone looking to invest in this retirement scheme, while Tier II accounts are optional.
- You can make regular contributions of any amount in the Tier I account to get annual tax savings of up to Rs. 200,000.
- Tier I account matures only when you retire, at which time you can withdraw 60% of your savings, which falls under EEE tax bracket, making it entirely tax-free.
- As a Tier II account holder, you may make regular partial withdrawals but you do not get any tax benefits.
HOW NPS WORKS?
As an NPS account holder, you need to make regular contributions to create your retirement corpus. The sums accumulated are pooled into a pension fund managed by PFRDA fund managers, and invested in diverse equity, government security and corporate bond schemes. The sums invested in the markets grow and accumulate over the years; generating returns based on their market performance and investment durations. The NPS account matures when you retire, typically around 60 years of age. Upon retirement, you may withdraw 60% of your contributions into the account as a lump sum, with no tax implications; whereas 40% of the accumulated retirement wealth is used to purchase from PFRDA empanelled annuity service providers.
- Portability – NPS does not have any Geographical restrictions. An account opened in any state of India can be accessed from all over the country. NPS corporate account is transferable between employers.
- Flexible – NPS gives the subscriber the flexibility to choose the Fund Manager, Investment Option, Annuity Service Provider, etc. This gives you the control over your investments.
- Economical – NPS is currently one of the cheapest investment products available.
- Voluntary – NPS is voluntary product for citizens of India. Only for central and state Government employees, NPS is compulsorily under the fixed contribution scheme.