Launched in 2004, National Pension Scheme (NPS) is a voluntary, government-backed, defined retirement savings plan. The objective of NPS is to allow you to accumulate funds to create a stable income during the non-working years of your life. Previously, the Post Office NPS was available for salaried individuals. However, the scheme is now available for all resident and non-resident Indians between 18 to 65 years.
If you are interested in investing in the NPS, read more about the scheme here:
What is NPS? How does it work?
NPS is a voluntary, defined contribution-based retirement savings scheme that allows you to contribute funds to create a retirement corpus. Like mutual funds online, the NPS invests your money in a diversified portfolio of market-linked securities, such as stocks, bonds, government securities, corporate debentures, alternative assets, etc. You can allocate only 75% of the corpus to equity. The NPS is regulated and managed by the Pension Fund Regulatory Development Authority of India (PFRDA).
The money you save in the NPS account generates returns through investments over time. Like mutual funds online, your NPS investments get tax exemption up to Rs. 1.5 lakhs under Section 80CCD (1) of the Income Tax Act, 1961. You further get a tax deduction of up to Rs. 50,000 under Section 80CCD (1B).
What are the salient features of NPS?
- Anyone between 18 and 65 years can invest in an NPS.
- Indians and non-resident Indians are eligible to apply for NPS.
- Like mutual funds online, NPS offers market-linked returns according to the underlying securities.
- The scheme is regulated and managed by PFRDA.
- There is no fixed maturity period. You can contribute to your NPS account until 60 years and extend it further to 70 years.
- The minimum contribution limit for NPS is Rs. 6,000. However, there is no upper contribution limit, provided your contribution is less than 10% of your salary or 10% of gross income if you are self-employed.
- You can take partial withdrawals from NPS after ten years, subject to some circumstances.
- At retirement, you can only withdraw 60% of the money. The remainder 40% should be used to buy a life insurance annuity.
What are the benefits of investing in NPS?
- Easy and convenient:You can open an NPS account online on https://enps.nsdl.com/eNPS/ or visit a POP (Point of Presence) entity.
- Voluntary:In an NPS account, you can contribute anytime during a year. You can also increase or decrease your NPS contributions.
- Contained risk:NPS limits your equity contributions to only 75%, reducing overall portfolio risk.
- Flexibility: You can choose your investment avenues according to your risk tolerance. You can invest in equity, bonds, government securities, corporate debentures, etc.
- Transparency:NPS is managed and regulated by PFRDA, ensuring transparency in investment.
- Low cost:NPS has low account maintenance and fees.
- Tax advantages: NPS investments enjoy tax exemption under Section 80CCD (1) and 80CCD (1B).
Overall, investing in the NPS is suitable for investors with limited risk tolerance. Alternatively, if you desire high returns with utmost investment flexibility, use the Tata Capital Moneyfy app to start investing in mutual funds online. Use the SIP (Systematic Investment Plan) mode to further reduce your investment risk. The Moneyfy app allows you to invest, monitor, and manage your mutual funds online easily from one platform.