Important NPS Rules

The National Pension Scheme (NPS) is one of the most reliable, low-cost and lucrative retirement pension plans available to Indian citizens. In fact, the NPS has the lowest maintenance cost compared to similar pension plans anywhere in the world. The advantages of low maintenance costs and the power of compounding returns help subscribers accumulate a healthy corpus for retirement.

Opening an NPS account with Finserv MARKETS, is very convenient. The NPS subscription with Finserv MARKETS, is completely online, and hence the need to visit banks is completely eliminated. Also, 100% transparency is ensured with no hidden charges.

However, before you open an NPS account with Finserv MARKETS, you should be aware of the most important rules. Knowing these rules will help you make the best of your investments and ensure that there are no false or unrealistic expectations.

Eligibility Rules

Any resident or non-resident citizen of India can subscribe to NPS if they are between the ages of 18-65 years on the date of submission. A non-resident Indian (NRI) can also open an NPS account in India. NRI contributions are subject to regulatory guidelines prescribed by the RBI and FEMA.

Types of Accounts

Subscribers can open two types of accounts under NPS:

  • Tier I – Under Tier I account, there are restrictions on withdrawal of money before retirement or until you reach 60 years of age. There are also conditions on partial withdrawals and exit.

  • Tier II – Under Tier II account, subscribers are free to withdraw funds anytime they wish.

While Tier I is a mandatory account, Tier II is voluntary. When you open an NPS account for the first time, it’s mandatorily a Tier I account. Tier II is an add-on account that can only be opened if you have a Tier I account.

Pension Fund Managers

The contributions made to your National Pension Scheme account is managed by authorised Pension Funds who have to follow the investment guidelines prescribed by the PFRDA. Investment guidelines are framed with the objective to ensure that the NPS account holder may suffer minimal impact in case of an economic downturn.

NPS subscribers have the option to select any one fund from the following list of 8 PFRDA-registered funds:

  • LIC Pension Fund Ltd

  • ICICI Prudential Pension Fund

  • Kotak Mahindra Pension Fund

  • Reliance Capital Pension Fund

  • SBI Pension Fund

  • UTI Retirement Solutions Pension Fund

  • HDFC Pension Management Company Ltd

  • DSP BlackRock Pension Fund Managers

Choice of Fund Management Schemes

As an NPS subscriber, you can choose from two investment options:

Active choice

If you opt for Active choice, you get the flexibility to choose among the four asset classes and the percentage of funds invested in each class. The four asset classes include:

  • Equities (E)

  • Government securities (G)

  • Corporate debt (C)

  • Alternate assets (A)

Under Active choice, you can allocate up to 75% of the contributions to equities for higher returns. Previously, the maximum allotment was 50%.

Auto choice

If you opt for Auto choice, the management of investment of funds is carried out automatically based on the age of the subscriber. However, subscribers can choose from 3 lifecycle funds:



Equity allocation


Equity allocation

Conservative Lifecycle Funds (LC25)





Moderate Lifecycle Funds (LC50)





Aggressive Lifecycle Funds (LC75)





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%.

Exit & Withdrawal Rules

Before understanding the withdrawal rules, it’s important to understand that NPS, as a retirement plan, requires long-term commitment to accumulate wealth and ensure a substantial corpus and a healthy pension after retirement. The longer you make the contributions, the greater the value of your retirement fund.

However, if you wish to exit or make withdrawals, you are subject to the following rules:

For subscribers between the ages of 18-60 years:

  1. Upon attaining the age of 60 years, you can withdraw 60% of the accumulated fund in a lump sum. If the total corpus does not exceed Rs. 2 lakh, you can withdraw the entire corpus in lump sum. If the total fund exceeds Rs. 2 lakh, 40% of the pension fund must be used to purchase an annuity plan for monthly pension.

  2. In case of unfortunate death of the NPS subscriber, 100% of the accumulated fund is paid to the nominee or legal heir.

  3. If you choose to exit from the NPS before reaching the age of 60 years, you will have to invest at least 80% of the pension fund to purchase an annuity plan for monthly pension. You can only withdraw the remaining 20% of the fund as a lump sum amount. However, if the total corpus does not exceed Rs. 1 lakh, you can withdraw the entire amount in a lump sum. Note that you can only exit from NPS after completing a minimum of 10 years.

Annuity Service Providers

The PFRDA has appointed IRDA-licenced life insurance companies as annuity service providers (ASPs) for NPS subscribers. Presently, there are 7 ASPs and the list may increase in the future.

The current ASPs include:

  1. Life Insurance Corporation of India
  2. SBI Life Insurance
  3. ICICI Prudential Life Insurance
  4. Bajaj Allianz Life Insurance
  5. Star Union Dai-ichi Life Insurance
  6. Reliance Life Insurance
  7. HDFC Standard Life Insurance

What are the available annuity plans under NPS?

Following are the various annuity plans available to NPS account holders:

  • Annuity for life

  • Annuity for life with return of purchase price on death

  • Annuity payable for life with 100% annuity payable to spouse on death of annuitant

  • Annuity payable for life with 100% annuity payable to spouse on death of annuitant with return on purchase of annuity

How are NPS returns calculated?

Pension Fund Managers (PFMs) are responsible for investing your money in different financial instruments according to the PFRDA investment guidelines. PFMs declare Net Asset Value (NAV) at the end of each business day and units are credits in your NPS account based on your contribution. The present value of the investment can be calculated by multiplying the NAV with total units held under your account.

NPS returns are market-driven and there are no guaranteed returns. Nor the accumulated returns are distributed as bonus or dividend. You can track your Pension Fund’s daily NAV at the NSDL – NPS CRA website

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