What is NPS?

It is a social security initiative by the Government of India. The scheme encourages people to invest in pension account at regular intervals during employment. After retirement, subscribers can take out a certain % of the corpus. Remaining amount is paid out as a pension.

Who can invest in the NPS?

This pension program is open to employees from both public and private sector upto the age of 65yrs. NPS is a good scheme for anyone who wants to plan for their retirement early on and has a low-risk appetite.

How to open an NPS account?

Offline Process

To open an NPS account offline or manually, you will have to find a PoP – Point of Presence, (it could be a bank too) first. Collect a subscriber form from your nearest PoP and submit it along with the KYC papers.

Online Process

Open an account online on http://enps.nsdl.com By providing Aadhar, PAN, mobile number, and a nominal amount of 1000/- This will generate a PRAN (Permanent Retirement Account Number), which you can use for NPS login..

Types of NPS Account

Flexibility of investment via two different options

Auto choice

It is available as a default option for subscribers as per the system. Fund investments under this option are managed automatically by an appointed fund manager as per an investor’s age profile.

Active choice

Individuals are free to decide among available assets. They can allocate different % of funds to be invested in with a max cap of 50% for Asset Class E-Equities. Other Asset Classes include Class C, i.e., Corporate Debt & Class G or Govt Securities.

When can a Subscriber exit from NPS?

Superannuation

When a subscriber reaches the age of Superannuation/attaining 60 years of age, they will have to use at least 40% of accumulated pension corpus to purchase an annuity The remaining funds can be withdrawn as a lump sum. If the total accumulated pension corpus is less than or equal to Rs. 2 lakh, the Subscriber can opt for 100% lumpsum withdrawal.

Pre-mature Exit

At least 80% of the accumulated pension corpus of the Subscriber has to be utilized for the purchase of an annuity that would provide a regular monthly pension. The remaining funds can be withdrawn as a lump sum. One can prematurely exit from NPS only after the completion of 10 years. If the total corpus is less than or equal to Rs. 1 lakh, the Subscriber can opt for 100% lumpsum withdrawal.

Upon Death of Subscriber – The entire accumulated pension corpus (100%) would be paid to the nominee/legal heir of the subscriber.

Subscriber can continue to contribute to NPS account beyond the age of 60 years/superannuation (Up to 70 years). This contribution beyond 60 is eligible for exclusive tax benefits under NPS.

List of various Pension Fund Managers for NPS

Conclusion

  • NPS is an excellent product for retirement planning with tax benefits
  • The flip side is that it has got a long lock in period
  • Investors must give serious thought to investing in NPS

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