A public defined contribution retirement savings plan is known as a National Pension System (NPS). The NPS wants to encourage people to make retirement savings a habit. Putting money into this financial instrument will increase your wealth while also reducing your tax burden. In this article, we shall cover the the necessary details regarding NPS.
Meaning
A defined contribution, flexible retirement savings plan is the National Pension System (NPS). Under the NPS, individual deposits are pooled into a pension fund, where they are invested by qualified fund managers. The programme qualifies for tax benefits under Sections 80C and 80CCD and is portable across jobs and locations.
How it works?
Where people decide to invest their retirement assets is largely determined by the National Pension Scheme (NPS). It goes without saying that having a reliable pension (income) in your golden years would be advantageous, especially for those who quit the commercial sector. Before the account person turns 60 or retires, no money can be taken out of their Tier I NPS accounts. The Tier II NPS account serves as a savings account for voluntary contributions.
Features & Benefits
- A citizen of India between the ages of 18 and 60 may create an NPS account. The sole prerequisite is that the person adhere to the necessary Know Your Customer (KYC) standards. A 12-digit number known as the Permanent Retirement Account Number, or PRAN, is given to each NPS member.
- It gives returns that are far better than other conventional tax savings plans like the PPF even if a component of the NPS is invested in stocks, which may not guarantee profits.
- The optional Tier-I and Tier-II accounts offer fund liquidity through investments and withdrawals. For a Tier II account, a deposit of at least Rs. 250 is required. Custodians, Trustee banks, and the CRA are the PFRDA-designated intermediaries.
- Self-contribution is covered under Section 80CCD(1) of Section 80C. Self-employed taxpayers cannot get this benefit. The lowest of the following shall serve as the maximum deduction amount:. 10% of Basic + DA, Gross Total Income is the actual NPS contribution made by the employer.
- You are not permitted to withdraw the whole balance of the NPS system after you retire. You must legally set aside at least 40% of the corpus if you want to get a monthly pension from an insurance provider. Recent government updates indicate that the whole NPS withdrawal corpus is tax-exempt.
- As you become older, your investments will become more secure and less erratic. Under the NPS, you are only allowed to invest a maximum of 50% in stocks.
| NPS TIER 1 RETURNS | |||
| Asset Classes | 1-year Returns(%)* | 5-year Returns(%)* | 10-year Returns(%)* |
| Equity | 15.33%-18.81% | 13.11%-15.72% | 10.45%-10.86% |
| Corporate Bonds | 12.46%-14.47% | 9.27%-10.15% | 10.05%-10.64% |
| Government Bonds | 12.95%-14.26% | 10.29%-10.88% | 9.57%-10.05% |
| Alternative Assets | 3.98%-16.73% | NA | NA |
| NPS TIER 2 RETURNS | |||
| Asset Classes | 1-year Returns(%)* | 5-year Returns(%)* | 10-year Returns(%)* |
| Equity | 15.19%-17.92% | 13.05%-15.83% | 10.35%-10.58% |
| Corporate Bonds | 12.71%-16.36% | 9.55%-10.17% | 9.86%-10.60% |
| Government Bonds | 12.61%-13.42% | 10.40%-12.00% | 9.59%-10.07% |
| Alternative Assets | NA | NA | NA |
Conclusions
Numerous mutual funds that appeal to investors from various backgrounds are accessible if you’re willing to take on additional equity risk. Except for the Indian Armed Forces, all government employees must participate in the NPS Tier I pension scheme. 10% of the employee’s base salary and Dearness Allowance is contributed by government workers.
