An essential guide to National Pension System (NPS)

The National Pension System is an initiative of the government to extend pension benefits to all Indian citizens. It is mandatory for central-government employees and the employees of some state governments to invest in the NPS. As per the earlier government directive, private-sector employees were proposed to be given a choice between the Employees' Provident Fund Organisation (EPFO) and the NPS which was later withdrawn. The employee contribution is generally 10 per cent of the basic salary and DA, with a matching contribution made by the employer. For central-government employees, the contribution by the government has been raised to 14 per cent. You can open two types of account under NPS - Tier I and Tier II. Now there is an additional account called Tier II - Tax Saver Scheme (NPS - TTS) available only for central- government employees. Features of NPS 1) Eligibility Any citizen of India, whether resident or non-resident. 2) Entry age Between 18 and 65 years on the date of application. 3) Minimum investment Initial contribution, along with the subscription application, is Rs 500 for the Tier I account and Rs 1,000 for the Tier II account (both regular and TTS). Minimum amount to be deposited annually in the Tier 1 account is Rs 1,000. There is no annual minimum for the Tier II account (both regular and TTS). 4) Interest Not guaranteed 5) Account-holding categories Individual A non-resident Indian can join if he is KYC compliant and between age 18 and 70 years. 6) Nomination Facility is available Investment objective and risks The main objective of the National Pension System is to instil the discipline to save and invest in an old-age pension. The NPS is a defined-contribution scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA), where the investment is to be maintained until retirement. On retirement, a part of the corpus is allowed to be withdrawn as a lump sum and the balance is mandatorily paid out as a pension annuity. Suitability and alternatives Suitable for conservative investors seeking to build their retirement corpus and tax exemption under Section 80CCD. Not suitable for investors who can assume more risk by investing in equity mutual funds, which can generate better returns in the long term. Alternatives are equity mutual funds/ direct stock investing. Aspects of National Pension System 1) Capital protection and inflation protection Your capita

This article was originally published on November 03, 2021, and last updated on September 15, 2022.