NPS Scheme Details: Everything You Need to Know About This Retirement Plan

We all dream of a peaceful and leisurely life post-retirement. However, the key to turning these dreams into reality lies in thoughtful planning and choosing the right investment for retirement. This is where the NPS Scheme emerges as a dedicated investment plan tailored for retirement, promising you a regular pension during your golden years. 

Here are all the NPS scheme details that you need to know:

Table of content

• What is the NPS Scheme?
• How NPS Works
• Benefits of the NPS Scheme
• Eligibility for the NPS Scheme
• How to Open an NPS Account
• NPS Withdrawal Rules

What is the NPS Scheme?

The NPS full form is the National Pension Scheme. The scheme is a voluntary retirement plan initiated by the government of India with the aim of helping investors secure their retirement. It is regulated and administered by the Pension Fund Regulatory and Development Authority (PFRDA) under the PFRDA Act, 2013. The NPS Scheme is designed in such a way that account holders can continue to earn a stable income after retirement, along with considerable returns on their investments.

How NPS Works

In the NPS scheme, the individuals have to invest funds during their working years to build a retirement corpus. The funds are invested by professional Pension Fund Managers in a diversified portfolio of assets, like government bonds, bills, shares, etc. At retirement, 40% of the accumulated funds are used to purchase an annuity for a regular pension, while the remaining amount can be withdrawn as a lump sum.

NPS accounts are of two types:

• Tier I Account: This is the primary account for retirement savings. It comes with tax benefits, but the amount in this account is locked till the account holder is of 60 years of age or he/she has retired.
• Tier II Account: This is a voluntary account where you can withdraw your funds at any time. It doesn't offer tax benefits, but it’s a more flexible option for those looking to invest and withdraw as needed.

Benefits of the NPS Scheme

Now that you know what is NPS contribution and how it works, here are some of its benefits:

High Returns

The NPS offers an annual return of 8 to 10%, which is higher than many low to moderate-risk funds available in the market. Investors can use this scheme to grow their wealth significantly over time.

Secure Retirement

One of the main benefits of NPS is that it allows individuals to secure their retirement and enjoy a regular stream of income in their golden years.

Tax Benefits

Contributions to NPS are eligible for tax deductions under Section 80C and Section 80CCD of the Income Tax Act. An additional deduction of up to Rs. 50,000 is available under Section 80CCD(1B) for NPS contributions.

Peace of Mind

As NPS is regulated and managed by the government of India, you can rest assured knowing that your funds are being managed properly.

Flexibility

NPS is designed with flexibility in mind, allowing you to select your preferred Pension Fund Manager, set your contribution amount, and determine your investment frequency. It's also accessible to a wide range of individuals, requiring a minimal initial investment of just ₹1,000, and only ₹1,000 annually to maintain an active account

Eligibility for the NPS Scheme

The eligibility criteria for National Pension Scheme include:

• The investors must be between 18-65 years of age.
• Investors must be of sound mind while making the investment.
• The investor must comply with Know Your Customer (KYC) norms, which involve submitting required documents for verification.
• Eligibility extends to Indian citizens, including residents, non-residents (NRIs), and Overseas Citizens of India (OCIs).

How to Open an NPS Account

Opening an NPS account is a straightforward process. Here is how you can do it:

• Start by visiting the official NPS website 
• Select between Tier I and Tier II account type
• Enter your Aadhar and PAN details
• Choose a Pension Fund Manager and investment option
• Provide necessary Know Your Customer (KYC) documents, including identity proof, address proof, and a photograph.
• Deposit the minimum required amount for opening the account
• After successful registration, you will be allotted a Permanent Retirement Account Number (PRAN)

Suggested Read: Indian Tax Budget 2024: Key NPS Highlights You Need to Know!

NPS Withdrawal Rules

Here are some NPS withdrawal rules that you must be aware of:

• Upon maturity of NPS, investors can withdraw up to 60% of their accumulated funds as a lump sum, while the remaining 40% must be used to purchase an annuity, providing a regular pension. 
• In the event of the investor's death, the entire accumulated pension wealth is transferred to the designated nominee. 
• Investors can also choose to invest a larger portion, up to 80%, of their corpus in annuities, receiving the remaining 20% as a lump sum.

As we conclude, it is clear that investing in a national pension scheme (NPS) can help you enjoy your retirement year stress-free. The flexibility, tax benefits, and long-term growth potential make it a solid choice for anyone looking to secure their financial future. To know which pension fund is best for NPS, it’s crucial to know your risk appetite, investment horizon, and financial goals. 

Muthoot Finance is a registered Point of Presence (POP) and has a vast network of branches across India, making it convenient for investors to open and manage their NPS accounts.