What is the National Pension Scheme (NPS)?

The National Pension Scheme (NPS) is a long-term retirement plan that allows you to make voluntary contributions and get a lump sum payment as well as regular income after retirement. The scheme is sponsored by the government of India and regulated by the Pension Fund Regulatory and Development Authority (PFRDA). NPS is considered as one of the best investment instruments for retirement planning.

In NPS, your money is invested in various assets by a pension fund manager to help you build a sizable retirement fund. Upon retirement, you can withdraw 60% of the retirement fund and invest the remaining in an annuity plan for regular income during retirement.

When you secure your retirement with an NPS plan at Finserv MARKETS, you are assured of 100% transparency from entry to exit day. An NPS account at Finserv MARKETS helps you fulfil your dream of living a comfortable retirement life with high returns, host of tax benefits and regular income.

How Does NPS Work?

When you open an NPS account, you are allotted a Permanent Retirement Account Number (PRAN). Contributions from your salary are made directly through the employer to your PRAN. When you attain the age of 60 or exit the scheme, the fund is made available to you. If you continue making contributions to the NPS until you retire, you will be able to withdraw 60% of the retirement fund while the remaining 40% will go towards providing you regular retirement income.

As a subscriber of the National Pension Scheme (NPS), you get the option to choose between four different types of funds such as equities, government securities, corporate debt and alternate assets. However, the privilege to choose between funds is only available if you decide to go for an Active account. If you opt for Auto, the funds will be automatically allocated to the four different funds. With Active choice, you can change your fund allocation according to your risk appetite, investment goals and market conditions.

At Finserv MARKETS we give you the freedom to select the fund and the fund manager of your choice. You have complete flexibility to switch between various investment plans and fund managers.

Types of NPS accounts

NPS accounts are available under two formats: Tier I and Tier II. In Tier I, account holders cannot withdraw the amount until they reach the age of 60. However, they can make partial withdrawals. Subscribers of Tier II accounts have the freedom to make partial or complete withdrawals anytime during the tenure.

Equity allocation in NPS Accounts

At Finserv MARKETS investors are given the choice to operate an Active or Auto account. Apart from the Active account, the Auto account also offers some degree of flexibility in deciding how your money is invested by the pension fund manager.

Auto account gives you the option to choose between 3 lifecycle funds: Conservative, Moderate and Aggressive. In each of these funds, equity allocation automatically changes to varying degrees as the subscriber’s age increases. For instance, if you choose the Conservative option, 25% of the fund is allocated towards equities from age 35-54. Once you reach 55 years, equity allocation drops to just 5%. See the table below for detailed figures.

Options

Age

Equity allocation

Age

Equity allocation

Conservative

35

25%

55

5%

Moderate

35

50%

55

10%

Aggressive

35

75%

55

15%

NPS Tax Benefits

After the 2019 budget, NPS has become more attractive for investors because of increased tax benefits announced by the government.

  • As per new regulations, 60% of the retirement fund is tax free. That makes the entire retirement fund tax exempt since you have to invest the remaining 40% of the fund in an annuity plan for regular post-retirement income.

  • Under Section 80CCD (1B), salaried and self-employed taxpayers can get a deduction of up to Rs. 50,000 in a financial year, provided they have invested in a Tier 1 account. This deduction is over and above Rs. 1.5 lakh tax relief allowed under Section 80C.

  • You can get up to Rs. 1.5 lakh as NPS tax benefits under Section 80CCD (1). Salaried people are eligible for a maximum deduction of 10% of their basic salary plus dearness allowance. Self-employed individuals can claim deductions up to 20% of their gross income under Section 80CCD (1).

  • If you are an employer, you can get tax benefits under Section 80CCD (1) towards contribution made to employees’ NPS account.

How much should I invest in NPS for tax benefit?

Whether you are a salaried individual or self-employed you can tax deductions up to Rs. 50,000 in a financial year from NPS. In case, you have exhausted the income tax benefit under Section 80C, which offers a maximum tax deduction of Rs. 1.5 lakh, you can invest in the National Pension Scheme and get an additional deduction of Rs. 50,000. That way, you will be able to get total deductions of Rs. 2 lakh on your income tax liability.

Is NPS right for me?

The National Pension Scheme is the right investment instrument for anyone who wants to plan for a comfortable retirement life. NPS secures your life after retirement with a healthy corpus and regular monthly pension to meet your expenses. Having a pension after retiring from a private sector job really makes a huge difference in your retirement life. Additionally, it allows salaried individuals to maximize tax benefits under Section 80C.

How to open an NPS account with Finserv MARKETS

The PFRDA has eased the process of opening an NPS account online. At Finserv MARKETS, NPS account opening is fast and easy. To open an NPS account online, you need a mobile number, email id and your bank account details.

Please follow the below steps to open an NPS account with Finserv MARKETS:

  • Once you click Apply, you need to enter your mobile number. Enter the OTP sent to your mobile number to login to the site.

  • Enter your personal and net banking details.

  • Select portfolio allocation among the four available funds.

  • Provide nominee details.

  • Upload a cancelled cheque of the bank account you have provided above.

  • Upload your photograph and specimen signature.

  • Make your first NPS payment.

  • Upon successful completion, you will be provided your Permanent Retirement Account Number (PRAN).

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