Should you invest in a National Pension System (NPS) account?

Initially introduced for government employees, NPS is now open to anyone looking to build a healthy retirement corpus

The National Pension System (NPS) is a pension scheme introduced by the Government of India to encourage citizens to build a retirement fund. Initially meant exclusively for government employees, the scheme had more than 5.2 crore subscribers as of March 2022, according to the latest data from the Pension Fund Regulatory and Development Authority.

You can also invest in NPS and build a retirement fund. However, before that, you must learn everything there is about NPS. This article can help you with the major details you need to know about NPS.

What is NPS?

National Pension System (NPS) is a pension-cum-retirement scheme designed and managed by the Pension Fund Regulatory and Development Authority (PFRDA) under the purview of the Central Government. The system allows individuals to build a retirement scheme by slowly investing money every month. The scheme is voluntary to the common public and is open to employees of all sectors.

You can start by investing as little as ₹500 and build a wealth corpus. 60% of your invested sum and the returns can be availed when you turn 60, with the rest distributed as a monthly pension.

Types of NPS account

Unlike other pension schemes, NPS gives you the option to choose how your money should be invested. According to your choice, the money you invest in NPS is used to buy different types of assets. Therefore, NPS has similarities to a mutual fund. NPS also has a fund manager who creates and manages the fund. You can choose a fund according to your risk appetite.

For instance, if you are a risk-averse investor, you could choose a fund with less equity exposure. The selection has some limitations according to your age as well. It is implemented to minimise risk, especially when closer to your retirement.

What are tier 1 and tier 2 in NPS?

There are two types of accounts you can open in NPS. Tier 1 is default and is needed to open a tier 2 account. Tier 1 account is your default pension account, and it has a lock-in period that runs until you are 60. Investing in the tier 1 account is popular because it comes with tax benefits.

Tier 2 account, meanwhile, is optional. It is for those who want the benefits of NPS without the lock-in period. Hence, money can be withdrawn at any point. However, tier 2 NPS accounts do not offer any tax benefits.

Benefits of NPS account

Let's discuss some of the top advantages of NPS:

• Unlike other pension schemes, NPS is equity-linked. As a result, it can help you grow your money quickly.
• It is an excellent tax-saving investment option. You can save up to ₹1.5 lakh under section 80C of the Income Tax Act. Plus, withdrawal up to 40% at retirement is entirely tax-free.
• It is highly flexible. You will find a suitable NPS fund no matter your investment horizon and risk appetite.
• It has a low expense ratio. Couple that with the power of compounding, and your money could grow significantly.
  

How to open an NPS account online?

A new NPS account can be opened online in less than an hour. Visit enps.nsdl.com and start a new registration. Keep your PAN card and Aadhaar card ready for a seamless experience. Also, ensure your mobile number is registered with Aadhaar, as you will receive an OTP for authentication.

The earlier you start building your retirement fund, the more it can grow. Opening an NPS account is straightforward, so you can get started whenever you are ready to up your investment game!

Disclaimer

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