National Pension Scheme (NPS) is a government sponsored pension scheme available to all citizens of India. It was introduced in January 2004 and is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
Some of the benefits of NPS include
Affordability
NPS is an affordable pension plan that allows individuals to invest small amounts regularly. This makes it accessible to a wide range of people, including those with low incomes.
Flexibility
NPS offers a high degree of flexibility in terms of investment options. It allows individuals to choose between investments in equities, government securities and corporate bonds, as well as adjust their investment mix over time as their risk tolerance and financial goals change.
Tax Benefit
Contributions to NPS are eligible for tax deduction under section 80C of the Income Tax Act, 1961. Additionally, a portion of withdrawals at retirement are tax-free, which can help reduce an individual's overall tax burden.
Portability
NPS is a portable pension scheme, which means that an individual's account can be transferred from one employer to another or from one place to another without any interruption.
Security
NPS is a regulated scheme, and the pension fund is managed by professional fund managers. The returns on the money invested are monitored by the PFRDA, which ensures that the interests of the customers are protected.
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Encourage the habit of savings
The National Pension Scheme encourages the habit of long-term savings among people who can use it as a tool for retirement planning.
Withdrawals
NPS allows partial withdrawals from the scheme under certain conditions such as higher education, illness and construction of a house.
Low cost
The expense ratio of NPS is the lowest among pension plans.
Investment Options
NPS offers a choice of three investment options, including the Equity option, which allows individuals to invest in the stock market and potentially earn higher returns over a long period of time.
Exit Options
Individuals can exit the NPS before the age of 60 years, however the withdrawal will be subject to certain conditions, such as the need to use a certain percentage of the accumulated corpus for annuity. However, the new rules allow NPS subscribers to withdraw up to 60% as lump sum and the remaining 40% to be used to buy annuity.
Government co-contribution
NPS subscribers who belong to the low and middle-income group are eligible for government co-contribution, which means that the government will match the subscriber's contribution up to a certain limit.
Auto Choice Option
An 'Auto Choice' option is available where the customer can opt for this investment option and the fund is automatically invested in a variety of assets (Equity, Government Securities, Corporate Bonds etc.) based on the age goes. ,
Online Access
NPS account holders can access their account online, which allows them to check their balance, track their contributions and make changes to their investment mix.
Good Investment Tool for Retirement
NPS is considered a good investment tool for retirement planning as it provides a steady flow of income during retirement and also offers flexible exit option.
Overall, the National Pension Scheme can be an effective tool for individuals to save for their retirement with a number of tax benefits and investment options. However, it is important for individuals to understand its limitations and requirements before subscribing to the scheme.
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