The National Pension Scheme is a government-backed savings scheme open to every citizen of India, but compulsory for government employees, except people in the armed forces. It was launched in 2004 to replace the Old Pension Scheme for government employees but was opened to all sections of the society in 2009. It is a market-linked scheme, which is a major departure from the earlier defined benefit system. Individuals have to invest in NPS regularly during their working life. After retirement, 60 percent of the accumulated corpus can be withdrawn, while the balance 40 percent has to be compulsorily used to buy an annuity. NPS is regulated and managed by the Pension Fund Regulatory and Development Authority (PFRDA).
There are two types of accounts under NPS—tier 1 and tier 2.
The defining feature of NPS is the flexibility it provides with the investment asset and fund managers. The accumulated fund is not invested in a single asset like other savings scheme, rather investors are given a choice to decide the proportion of investment in the four assets offered under the scheme. Subscribers to the scheme are offered two options—active choice and auto choice. Four investment schemes are offered under the active choice. Investment in fixed income instruments is known as Scheme C and in government bonds is known as Scheme G. Investments in equities and alternative investment funds are called Scheme E and Scheme A, respectively.
An investor can put in his/her money in any of the schemes, but investment in the equity scheme is capped at 75 percent. NPS allows you to choose from eight fund managers to manage your investments. If you are not satisfied with the performance, you can change the fund manager once and the allocation mix twice in a year. Anyone between the ages of 16 and 65 can open an NPS account. NPS investments mature at retirement but can be extended for an additional 10 years. Even Non-Resident Indians are allowed to open NPS accounts.
An individual can invest in NPS easily through Finserv MARKETS in four simple steps.
a) Provide the amount to be invested
b) Complete the payment
c) Complete the Know Your Customer process with required documents
d) Upon a successful transaction, you will get your unique Permanent Retirement Account Number or PRAN.