National Pension Scheme (NPS) was one of the best investment options sponsored by the Indian government, which came into effect in early 2004, under the Management Pension Fund project. NPS was launched with the objectives of providing an old age income, extending security coverage to senior citizens and appropriate market returns over the long-run. Initially, this scheme was only accessible to government employees. However, five years down the line, the pension scheme was opened to all citizens, irrespective of their employment with Indian Government. NPS is one of the many investment options that allow subscribers to regularly contribute at fixed intervals to their pension account. Contributions are made during the employment period and after retirement, subscribers can make withdrawals. This investment option allows subscribers to withdraw a lump sum amount and the unused portion can be used to invest in other investment options to secure a regular income post retirement.
Considering the volatility of investment instruments such as equity, making a long-term investment into the NPS can be considered one of the best investment options. The contributions are invested across various types of assets, and retirement corpus available at the time of withdrawal will be based on assets-generated returns. Most often, returns are related to the market and will be based on market performance, with fund managers taking care of investment decisions. This makes it one of the best investment options in India, particularly for investors who are looking to channel their savings into investments that come with tax deduction benefits.
For increased convenience, you can get your NPS account started at Finserv MARKET. NPS investment is a completely digital and cashless process, which can be completed without visiting the branch. Just upload your documents online, and enjoy transparency as well as easy accessibility to your NPS corpus.
The NPS is open to any Indian citizen aged between 18 to 60 years, either residing in the country or a non-resident Indian (NRI). The pension scheme offers two different investment plans –
1. Active choice: This option permits the investor to decide on the investment manager and to choose the ratio in which their funds should be invested in asset classes.
2. Auto choice or lifecycle fund: This option is usually the default option for the investor, where the invested money is automatically invested into assets based on the subscriber’s age and risk appetite. This option is for investors who do not have the knowledge to manage their investments. In this category, the investments are made on the basis of different lifecycle funds.
The investor also has the option to change their investment choice once every financial year. In case they are unhappy with their fund manager or scheme option, they have the option to change this selection as well.
NPS offers two different accounts namely Tier-I and Tier-II.
Tier-I is a mandatory account, whereas Tier-II is considered a voluntary account. The major difference between both accounts is based on the limit of withdrawals.
For instance, an investor can easily withdraw the entire money from the Tier-II account. However, there are restrictions on money being withdrawn from the Tier-I account.
Potential to clock in higher returns
The new norms have permitted fund managers to increase their investments in equity-based asset classes, helping investors to generate higher returns and boost their retirement funds.
Apart from tax deduction and retirement benefits, NPS is considered as a profitable investment option if invested wisely and appropriately. Millennials and young professionals can leverage the benefits of compounding – giving them ample time to build a significant retirement corpus, while enjoying benefits like tax deductions at the time of employment.
Here’s a quick example: A person drawing an annual salary of Rs.5 lakh and falling under the 30 percent tax bracket can save nearly Rs.15,045 in every financial year. This is after exhausting Rs.1 lakh exemption limit, under Section 80C of the Income Tax Act. Currently, NPS allow investors tax relief of upto Rs. 50,000, under section 80CCD (1B) over and above the prescribed tax deduction of Rs. 1.5 lakh.
Just like the government-sponsored employees’ provident fund (EPF) scheme, NPS also comes with portability benefits. If a person shifts to new workplace, he can continue their NPS plan by transferring the account. However, in case of money withdrawal before maturity, the scheme does not permit investors to withdraw the entire amount. Only up to 60% can be withdrawn and the remaining amount is required to be invested in an annuity plan, with a pension that starts when the investor turns 60. In case of discontinuation of the scheme, the pension account will be frozen and can be reactivated only if investor make the minimum contribution along with penalty.
Investing in the NPS via Finserv MARKETS allows for easy transparency even in matters of transferring your account, or accessing it from remote locations. By making the process entirely digital, Finserv MARKETS has added an extra layer of convenience to the scheme which is helping subscribers stay updated on their NPS account details.
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