NATIONAL PENSION SYSTEM  : THE SMART WAY TO SAVE FOR YOUR RETIREMENT


Introduction :

Retirement plan is very important in our life . We must take a financial decision for our retirement. One of the best government backed retirement scheme is National Pension System which was introduced by The Government of India in the year 2004 , It was initially designed for Government employees but from the year 2009 it has been open for all Indian citizens between the age of 18 years to 70 years .Now it is open for all Indian citizens.

In this blog I am discussing all about NPS and also discussing how you can use it for your financial future.

What is the National Pension System (NPS) ?

NPS is the Government backed scheme which allows individuals to systematically save for their retirement . NPS is regulated by the Pension Fund Regulatory and Development Authority. In provides an opportunity to invest in a mix of debt and equity market , depending on their risk tolerance , helping them to build a retirement corpus.

Upon retirement NPS provides you a option to withdraw a part of the accumulated corpus and rest of the amount is used to provide a regular pension.

Features of NPS :

a)  Eligibility :  Every Indian citizen aged between 18 years and 70 years can open NPS account . Non-resident Indians also can open a NPS account.

b)  Types of accounts :

i)            Tier I Account :  It is the primary retirement account where an individual is restricted to withdraw until attain the age of 60 years.

ii)          Tier II Account :  It is a voluntary savings account which allows free withdraw  , but it is available only for those who already have  a tier I account.

c)  Investment choices :

i)            Active Choice : You have freedom to choice your investment proportion into different classes of assets like equity , corporate bonds etc.

ii)          Auto choice : One who are not wish to manage their investments. Auto choice offers a lifecycle fund where allocation of asset classes are automatically changes according to the age of the subscribers.

d)  Tax Benefit : NPS provides you tax benefit . Contribution to Tier I is account are eligible for Income tax deduction U/S 80C of Income Tax Act , 1961 up to Rs. 1,50,000(Rupees One lakh fifty thousand).

And additional deduction up to Rs. 50,000 is allow U/S 80CCD(1B) .

So, total deduction you can claim is Rs. 2,00,000.

e)  Withdrawal rules : Upon attain the age of 60 years you can withdraw up to 60% of the accumulated corpus tax free and remaining 40% must be used to purchase annuity which will provide regular pension .

What are the Benefits of NPS in India :  

i)                  Attractive return : NPS offers to invest in equity , so it provide higher return . Historically NPS has provide returns between 8% to 10% per annum.

ii)                Low Cost Structure : One of the most benefit of this scheme is it is low cost structure. The fund management charges are capped at 0.01% which is very low and make it cost effective way to invest.

iii)             Tax benefit : we can claim tax deduction u/s 80C and 80CCD(1B) of the Income Tax Act , 1961 up to Rs. 2,00,000 (Rupees two lakh).

iv)             Retirement security : Unlike equity which may fluctuate in value , NPS provide a steady flow of income after retirement through annuity.

How to open NPS Account in India?

It is very easy to open NPS account offline or online. Offline You can go to the designated Banks or online you can visit eNPS portal.

If you want to open NPS account online you can follow the following steps

i)            Go to the official NPS website

ii)          Register using your PAN , Aadhaar card.

iii)        Fill the necessary details like , name address , date of birth .

iv)        Select your option – active or auto choice.

v)          Make the minimum investment of Rs. 500.

vi)        Once the whole process is complete you will receive a Permanent retirement Account Number(PRAN ).

Compare NPS with others pension plans :

Lets compare NPS with other traditional plans which will help you for better understand about NPS.

However NPS has certain market risk in the equity segment but in case of PPF , EPF provide guaranteed return.

Features

NPS

EPF

PPF

Returns

8% to 10% (approx.)

8.5%

7.1%

Investment choice

Equity+Debt

Debt(fixed)

Debt(fixed)

Tax Benefits

Up to Rs. 2,00,000

Up to Rs. 1,50,000

Up to Rs. 1,50,000

Withdrawal flexibility

Partial at the age of 60 years

Full withdrawal after retirement

Full withdrawal after 15 years

Risk

Moderate to high

Low

Low

 

Conclusion : National Pension System is a great choice for those who want to secure their financial future after retirement . In this scheme with combination of equity and debt provides higher return in long term. It also provide low cost structure and tax benefit which is great feature of NPS.

If you are planning for your retirement NPS is the great option to invest. With the consistent contribution , you can ensure a comfortable and financially secure retirement.

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