Looking To Invest In National Pension System (NPS)? Five Things To Know

‘NPS or National Pension System, a retirement savings scheme, is a pension-cum-investment scheme which offers regulated market-based return. NPS subscribers invest money to the fund that invests, via pension fund managers (PFMs), in various money-making instruments. Regulated by PFRDA or Pension Fund Regulatory and Development Authority, NPS enables the subscriber to adjust allocation to different asset classes, such as equity market instruments, government securities and other fixed income instruments, according to the NSDL website. Part of NSDL or National Securities Depository Limited, NSDL e-Governance Infrastructure Limited is the central record-keeping agency for National Pension System.

Here are five things you need to know about investment in NPS:

1. National Pension System (NPS) is a government-sponsored pension scheme launched in January 2004 for government employees, and extended to all citizens in 2009. The subscriber’s money is invested by pension funds, which are also responsible managing the pension corpus.

2. NPS offers two kinds of accounts: tier 1 and tier 2. The tier 1 account is non-withdrawable till the person reaches the age of 60. The Tier II NPS account works like a savings account whiere the subscriber is free to withdraw the money as and whenever required. NPS allows partial withdrawal before the subscriber attains retirement in special cases, for reasons such as critical illness or children’s marriage.

3. The investor contributes to his or her own retirement account, and so does the employer in favour of the employee. The subscriber contributes to the account without any defined benefit, and the amount of return depends on the overall corpus and income generated from such wealth. Currently, the minimum employee contribution in NPS is 10 per cent of basic pay, An equal contribution is made by the government.

The minimum contribution required for a tier 1 NPS account is Rs 1,000 per financial year, where each contribution is required to be of a minimum Rs 500, according to NSDL. At least one contribution is mandatory every year in a tier 1 NPS account. In case of a tier 2 NPS account, the minimum amount required for each contribution is Rs 250, and there is no requirement of maintaining a minimum balance, according to NSDL.

4. The government has agreed to chip in a higher 14 per cent of the basic salary of an individual as its contribution to the National Pension System, news agency Press Trust of India reported citing a top source. The move is expected to benefit over 36 lakh central government employees.

5. An NPS subscriber can claim income tax deduction up to 10 per cent of gross income under Section 80 CCD (1) of the Income Tax Act within the overall ceiling of Rs 1.5 lakh under Sec 80 CCE. An additional deduction for investment up to Rs. 50,000 in an NPS Tier 1 account under Section 80CCD (1B), over and above the deduction of Rs 1.5 lakh under Section 80C. The Tier 2 account, however, does not allow any income tax benefit, according to NSDL.