How to Invest in National Pension Scheme?

The National Pension Scheme is a social security plan developed by the Central Government of India. It is a pension plan for individuals working in all sectors (private, public, unorganized) of India except the armed forces.

The National Pension Scheme is maintained and handled by the Pension Fund Regulatory and Development Authority (PFRDA) with assistance from the Central Government. Earlier, only central government employees were covered under the NPS. But now, any Indian citizen within their voluntary capacity can open a National Pension Scheme Account online.

The primary purpose of the NPS is to encourage people to make systematic savings on a regular basis in order to invest the same amount for their retirement needs. Post retirement, you can take out a certain percentage of the corpus or receive the remaining amount as a monthly pension.

Additionally, the NPS is portable across jobs and locations and comes with tax benefits under Section 80C and 80CCD of the Income Tax Act, 1961.

How to Start Investing in NPS?

You can invest in an NPS via online as well as offline mode.

Offline Process - All banks provide the facility of investing in NPS. You will have to physically visit a branch or nearest PoP - Point of Presence. Next, you are required to fill the application form, make an initial deposit and submit the requested KYC documents. The minimum initial investment can be as low as Rs. 500 or Rs. 250 monthly or Rs. 1,000 annually. Post submission, the PoP will give you a welcome kit (similar to a savings bank account kit) which will have your PRAN - Permanent Retirement Account Number details. The PRAN details comprise of your User ID and Password. The entire offline process costs Rs. 125 as a one-time registration fee.

Online Process - Through the online process, you can open an NPS account online in less than half an hour. Simply visit the official website of National Pension Trust System of India (enps.nsdl.com) and fill the online application form.

Benefits of Investing in NPS

There are numerous benefits of investing in a National Pension Scheme, mentioned below are a few:

The NPS is a voluntary pension scheme for Indian citizens between the ages of 18 to 60 years.
The NPS offers a lot of flexibility and hence, you can select your investment options.
You have the option to switch between different investment funds.
It is the cheapest market-linked retirement plan in India.
The NPS account is portable across jobs and locations.
It offers guaranteed returns at retirement.
Investment towards NPS are eligible for deductions under Section 80C and 80CCD of the Income Tax Act, 1961.
The NPS comes with transparent investment norms.
The NPS offers a higher rate of interest, especially the equities based fund option. You can receive good returns in comparison to other traditional tax-saving investments like the PPF.
60% of the withdrawn corpus amount is tax-free.
With NPS, you have the option to select and revise the pension scheme or the fund manager in case you are not satisfied with their performance.

How Does NPS work?

Under the National Pension Scheme, you can open two different types of account - Tier I and Tier II. The Tier I account is a primary account which is required to open a Tier II account. The difference between the two accounts is that the Tier I account does not permit premature withdrawal till the age of 60 years, while the Tier II account permits withdrawal whenever you need the fund. You can access both of your NPS accounts with the help of your PRAN (Permanent Retirement Account Number).

If you want to switch between different pension funds, ensure that you contribute regularly for a minimum duration of 1 year. This is important as your NPS grows over the years based on the returns received from investments.

When you open an NPS account, you have the option to select the choice of fund at the time of registration. In case you do not mention your preferred choice of fund, the funds will be selected and handled by the Pension Fund Regulatory and Development Authority (PFRDA).

Eligibility to Invest in NPS

The eligibility criteria for investing in an NPS are:

Indian citizens - state and central government employees/voluntary contribution can be made by private sector employees.
Age - 18 to 60 years.
Pre-existing pension account holders are required to register again under the NPS.

Documents Required for Opening an NPS Account

The documents required to open an NPS account are:

Proof of ID - PAN, Aadhaar, Passport, Job Card, etc.
Proof of Address - Passport, Ration Card, Aadhaar, Bank Passbook with Photograph, etc.
Application Form

FAQs on How to Start Investing in NPS

Is it wise to invest in NPS?

Yes, investing in a national pension scheme is an excellent choice. It can be easily availed online as well as offline and is a good source of regular income post retirement.

How much I should invest in NPS?

You are required to invest a minimum amount of Rs. 6,000 per year. The minimum one time contribution for a Tier I account is Rs. 500 or Rs. 250 monthly or Rs. 1000 annually. The minimum one time contribution in a Tier II account is Rs. 250

Can I invest more than Rs. 50,000 in NPS?

Yes, you can invest more than Rs. 50,000 in an NPS account. The total amount for tax deduction in a single financial year cannot exceed Rs. 2,00,000/-. There is no such upper limit for maximum NPS contribution.

Is it a good idea to invest in NPS?

Yes, an NPS is an excellent investment option.

How can I make a deposit in my NPS account?

You can make a deposit in your NPS account via net banking, DD, Cheque or cash deposit at the PoP - Point of Presence.

How much NPS is deducted from salary?

Only up to 10% of the basic salary can be put into the NPS by the company on behalf of the employee.