Looking for the best investment plan to save for your retirement? In early 2004, the Government of India launched the National Pension Scheme (NPS), a government funding scheme for Indian citizens who are looking to invest for their retirement. Here’s a quick guide to navigate the scheme and understand how one of the best investment options in the market can benefit you.
The NPS permits an investor to make low-risk investments in the form of regular deposits into their NPS account. This is done during their employment period, and a portion of the accumulated funds can be withdrawn when the employee retires. Unlike other investment options, such as mutual funds which offer returns in the short-term, investing in the pension scheme is a long-term investment plan for those investors looking for to build a corpus over the long run. The pension scheme is open to all citizens, including non-resident Indians (NRIs) and even those who belong to the unorganised sector of the country.
Investing in the NPS, via Finserv MARKETS, has the added advantage of investors being able to keep an eye on their account from anywhere at all. With increased transparency and seamlessness in processing, your NPS account is now just a few clicks away.
The NPS also comes packed with tax deductions, which are split into two types – Tier I and Tier II – to support tax planning. The Tier I account is pitched as the default pension account and is automatically created for everyone who has opted for the pension scheme. Opening an account under Tier I is simple. On Finserv MARKETS, the entire process can be completed online. Investors are asked to deposit a minimum amount of Rs.500 to open Tier I, and this account carries benefits like tax deductions. Tier II pension account is created voluntarily by investors, with a minimum payment of Rs. 250. Although the minimum investment amount is much lesser than other investment types like mutual funds, but this type of pension account does not come with perks like tax deductions.
Quick guide to open an NPS account: A step towards opting for a good investment plan
To open an NPS account online, an applicant requires Aadhaar Card (with current address and a contact number) or their PAN (linked to bank account), an email ID, a valid phone number and an active bank account that offers net banking services to their clients.
Visit the eNPS website and click on ‘new registration’.
Fill personal and bank details.
Decide portfolio allocation from: alternative investment fund, equity fund, corporate bond fund, and government securities fund.
Fill nominee details.
Upload cancelled cheque (account mentioned in the form), signature and photograph
In case of Tier I, contribute minimum investment of Rs. 500; and in case of Tier II, contribute minimum investment of Rs. 1,000.
In case of successful completion, PRAN (Permanent Retirement Account Number (PRAN) is a 12-digit unique number issued for every NPS subscriber) number will be generated.
After filling out all the necessary details, applicant can e-sign the form with Aadhaar and submit it.
Benefits of tapping into the pension scheme
One of the key benefits of an investment plan like NPS is the ability to leverage the power of compounding to grow wealth. Moreover, despite being a low-risk investment vehicle, contributions made to the pension scheme are diversified across various asset classes including money markets, government bonds and equity. This gives the investor exposure to multiple investment options, while maintaining a low risk profile. The retirement corpus’ value will depend on the returns that are generated over the investment period. There is a flexibility in terms of choosing the fund managers and investors that will track the performance of funds under each of the fund managers. For long-term growth by means of a secure retirement corpus, the NPS can benefit an investor.
Some benefits of NPS, through the Finserv MARKETS, over the long-term are enlisted below:
Tax benefits: With NPS, a deduction of up to Rs. 1.5 lakhs can be claimed, and in addition, a person can claim any self-contribution of up to Rs. 50,000 under section 80CCD(1B). Hence, NPS allows a benefit of up to Rs. 2 lakh in total in the form of tax deduction.
Changing the scheme manager: NPS allow both account holders (tier I or tier II) to change the fund or pension scheme manager, in case of any issues related to performance.
Withdrawal benefits: Users are compulsorily required to maintain minimum 40% of the corpus in their account to receive pension regularly from their PFRDA-registered insurance firm. The remaining 60% of the amount falls under tax-free category, which can be withdrawn.
Flexibility to choose between funds for distribution: An investor can choose between auto choice and active choice for distribution of their NPS. The active choice allows the investor to decide the scheme and fragment their choice of investment. In other types of choice, the user can decide the risk profile of the investment according to their age
Investing in the NPS, via Finserv MARKETS, provides several additional benefits which make this long-term scheme even more attractive.
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