The National Pension Scheme (NPS) was one India’s government-funded investment options that made headlines early 2004 when it rolled out for Central government employees. By 2009, the scheme was opened to all Indian citizens, removing the need to be employed by the government as part of its eligibility criteria. This opened the plan to an extensive audience, who were now able to tap into pension program. This came at a time when the country did not have any retirement contribution plan or social security initiatives in place for its citizens, and the NPS was a step towards changing that reality.
To be eligible for the pension scheme, subscribers need to meet the following criteria:
- The subscriber will need to be between 18 and 60 years of age
- The subscriber should comply with prescribed Know Your Customer (KYC) norms that are detailed in the Subscriber Registration Form (CS-S1) and CS-S2)
Pre-existing NPS account holders cannot rejoin the scheme since existing accounts are portable across employers and countries.
Today, the National Pension Scheme is one of the more popular investment options in India that permit subscribers to invest a sum at regular intervals towards their pension account. This amount is contributed during their employment period and a portion of it can be withdrawn only at the time of retirement. One of the best investment options, about 60 per cent can be withdrawn by the investor and the remaining 40 per cent can be invested across other investment options.
This portion will be paid out as annuity every month during the lifetime of the investor. The income does not come with tax exemption, however. It will be treated like regular income and will be taxed at the respective tax slab.
The statistics have been encouraging for the pension scheme. During the 2017-18 period, the total NPS contribution stood at almost Rs. 1,81,066 crore, up from almost 36 per cent from Rs. 1,33,165 crore during the previous fiscal period. However, when it came to pension plans in the insurance sector, the premium was up by almost Rs. 58,277 crore, up by almost 1 per cent from Rs. 57,490 crore during the previous fiscal. This highlights that sales for NPS were much higher than other long-term retirement plans like insurance.
Keeping in mind that equity markets comes with its share of volatility, channeling your savings into a pension scheme is one of the best investment options available currently. The investments are put into a mixture of equity, fixed income and government securities and the amount that can be withdrawn will depend on the returns that are generated by the assets. Usually, the investment decisions are made by the fund managers selected by the investor and the returns will be indicative of how the market is performing – giving room for higher returns, with low risk while still providing tax benefits. This makes the NPS one of the best investment options in India, particularly for investors who aim to build a solid retirement corpus, while enjoying tax deduction benefits.
At Finserv MARKETS, investing in the NPS program has been simplified for the investor – the entire process can be completed online without visiting the branch of facing any paperwork hassles.
At present, the pension scheme offers two different investment plans – the first option allows the investor to decide where to invest the money by selecting the desired fund and asset classes. The second option is the default option and the invested sum is automatically invested across assets that match the individual’s risk appetite and investment goals.
The NPS can generate robust returns for the investor
The latest NPS norms enable fund managers to deposit the investments across equity-based instruments, assets that garner high returns and over time, build a retirement corpus that can meet the investor’s retirement goals.
Although tax deduction and retirement benefits are definitely attractive perks, the NPS will be a profitable investment option if invested wisely and the right selections are made. Young professionals will be able to tap into the benefits of compounding. This will provide them with the advantage of time to build a significant retirement corpus, while enjoying benefits like tax deductions and greater returns.
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