The National Pension Scheme (NPS), regulated by the Pension Fund Regulatory and Development Authority (PFRDA), is a voluntary pension system offering tax benefits under EEE status in India. While NPS ensures a tax-free corpus at maturity, it competes with Fixed Deposits as a reliable investment option for varied financial goals.
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The NPS is a voluntary, defined contribution pension scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It offers a market-linked approach to saving for retirement, managed by professional fund managers.
In the NPS, individual savings are pooled into a pension fund, which is invested in a diversified portfolio of assets like government bonds, bills, corporate debentures, and shares. The returns on these investments contribute to the growth of the NPS account over time. Subscribers can contribute regularly to their NPS scheme and have the flexibility to exit the scheme before retirement or opt for superannuation.
A key feature of the NPS is that it mandates a portion of the accumulated savings to be used for purchasing an annuity, providing a lifetime pension income. Upon retirement, exit, or superannuation, at least 40% of the accumulated funds must be used to purchase an annuity, while the remaining amount can be withdrawn as a lump sum. This ensures that subscribers have a steady income stream in their retirement.
Particulars |
Details |
Scheme name |
NPS Vatsalya Pension Scheme |
Minimum entry age |
18 years |
Maximum entry age |
65 years |
Annuity purchase |
40% of the corpus is used for annuity |
Withdrawal at retirement |
Up to 60% of the accumulated corpus |
Pension start age |
After 60 years |
Tax deduction |
Under Section 80C and 80CCD |
There are two types of NPS accounts, Tier I and Tier II. The former is the default account, while the latter is a voluntary addition. The table beneath clarifies the two record types exhaustively.
Particulars |
NPS Tier-I Account |
Status |
Default |
Withdrawals |
Not permitted |
Tax exemption |
Up to Rs. 2 lakh p.a.(Under 80C and 80CCD) |
Minimum NPS contribution |
Rs 1,000 |
Maximum NPS contribution |
No limit |
The National Pension System (NPS) is designed to help individuals build a substantial retirement corpus as part of their financial planning.
This scheme ensures that individuals can meet their post-retirement expenses and lead a financially secure life without difficulties.
Recognising the growing senior citizen population in India, the government introduced the NPS to address their financial concerns effectively.
NPS promotes disciplined savings during an individual’s working years, encouraging financial preparedness for a stress-free retirement.
Here are the specific features and benefits of investing in the National Pension Scheme:
NPS is a portable pension scheme, meaning that subscribers can continue their pension savings even if they change jobs.
NPS offers investment options in equity, corporate bonds, and government securities, which allows subscribers to choose their preferred investment mix.
NPS has a fund management system, where pension fund managers manage the investment of subscribers' contributions.
NPS allows for systematic investment through monthly contributions, which can help subscribers to build a pension corpus over time.
Subscribers can nominate a beneficiary, who will receive the corpus in the event of the subscriber's death.
NPS is known for its low costs, which make it an attractive option for long-term pension savings.
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Unlock the potential benefits of the NPS scheme, offering a secure retirement avenue with tax advantages and investment flexibility. Explore features like tax deductions, market-linked returns, and portability, ensuring financial stability and growth in your golden years.
Contributions to NPS are eligible for tax benefits under Section 80C of the Income Tax Act and additional deductions under Section 80CCD (1B).
Upon retirement, subscribers can withdraw up to 60% of the corpus as a lump sum and use the remaining 40% to buy an annuity, which provides a regular pension income.
NPS invests in a mix of equities, bonds, and government securities, which provides market-linked returns to subscribers.
Subscribers have the option to choose from a range of annuity plans and providers, which provides flexibility in terms of pension income.
NPS provides subscribers with regular account statements, which can help them track their pension savings and investment performance.
Note: The actual benefits may vary based on the subscriber's specific circumstances and the rules in effect at the time of withdrawal.
Individuals meeting the specified eligibility criteria are eligible to enroll in the National Pension Scheme (NPS). The eligibility requirements are as follows:
Additional read: Post Office Monthly Income Scheme
Opening a National Pension Scheme (NPS) account online is a quick and straightforward process. The Pension Fund Regulatory and Development Authority (PFRDA) allows individuals to enrol online through their eNPS platform. This digital method requires minimal paperwork and offers a hassle-free experience. Follow these steps to get started:
To open an NPS account offline, visit a Point of Presence (PoP) registered with the PFRDA, such as banks or authorised financial institutions. Collect the NPS subscription form, fill it out, and attach required documents, including identity proof, address proof, and a passport-sized photo. Submit these along with the initial contribution. Upon processing, you will receive a Permanent Retirement Account Number (PRAN) for account management.
Here are the steps to login to NPS account
Step 1: To access your NPS account, you need a 12-digit Permanent Retirement Account Number (PRAN). Obtain your PRAN by submitting the required documents either on the NSDL website or at the Point of Presence (POP) service providers.
Step 2: Navigate to the official NSDL CRA portal.
Step 3: Input your PRAN, date of birth, new password, confirm the password, and enter the captcha. Once all details are provided, click the submit button.
Step 4: A generated IPIN will be provided for logging into the NSDL portal.
Step 5: Log in to the NSDL eNPS page and select ‘Login with PRAN/IPIN’.
Step 6: On the subsequent page, utilize your PRAN and IPIN to access your NPS account.
The User ID for National Pension Scheme (NPS) login is your Permanent Retirement Account Number (PRAN), a unique identifier provided upon registration, used for account access and management.
Before investing in NPS, it might be worth exploring how the returns are calculated and what pension amounts you can expect at the end of your tenure. Here is the formula for calculating NPS:
A = P (1 + r/n) ^ nt
where,
P = principal
r = rate of interest
n = number of times interest has compounded
t = total tenure
It is important to note that there is no singular interest rate for NPS. This is because NPS is essentially market-linked, which means the interest rate for its returns depends on the performance of the assets that you invest in.
To that end, here are the four types of asset classes in which you can invest with NPS:
Asset class |
Asset type |
Class G |
Government Bonds |
Class E |
Equities |
Class C |
Corporate Bonds |
Class A |
Real Estate Investment Trusts (REITs), Commercial mortgage-backed securities, and alternative investment funds. |
The scheme has been in place for more than ten years and has thus far produced annualized returns of 9% to 12%. If you are unhappy with the performance of the fund, NPS also gives you the option of switching fund managers.
Tenure |
Invest till 65 years |
Interest rate |
9% - 12% p.a. |
Investment amount |
Starting at Rs. 1,000 |
Maturity amount |
Depends on the initial investment amount |
NPS investments are one of the most recommended modes of investment for people looking to fulfil long-term financial goals. This is because you can only exit an NPS and withdraw the resulting amount after a period of 10 years. NPS withdrawal money can therefore be utilised for looking after your retirement, funding your children’s education or wedding or making an essential purchase such as buying a home.
Additional read: Sukanya Samriddhi Yojana Scheme
The National Pension Scheme (NPS) is advantageous for individuals aiming to proactively strategise for their retirement, particularly those with a conservative risk tolerance. The prospect of a steady pension income during retirement holds significant value, especially for individuals retiring from private-sector employment.
Embracing a systematic investment approach through NPS can yield substantial benefits in the post-retirement phase. Additionally, individuals with a desire to optimize their 80C deductions can find this scheme to be a valuable consideration, particularly those employed in salaried positions.
To gain a better perspective on how an NPS investment fares against an investment such as the Bajaj Finance Fixed Deposit, here is a brief review of their comparison:
Feature |
NPS |
Bajaj Finance FD |
Purpose |
Investment to save for retirement |
Investment for a variety of short-term or long-term goals |
Tenure |
Can only exit after 10 years |
Can choose tenure between 12 to 60 months |
Nature of Investment |
Market-linked |
Free from market risks |
Interest Rate |
Depends on the performance of the asset classes in which you have invested |
can go up to 8.60% p.a. for senior citizens |
Thus, from the above table, it is clear that Bajaj Finance FD has several advantages over NPS, in terms of flexibility and assurance of guaranteed returns. NPS is an ideal investment for those looking to accumulate a corpus for retirement as well as to fulfil various long-term goals.
Whereas Bajaj Finance FD is a great investment for the short-term as well.
Those looking to choose between the National Pension Scheme (NPS) and Fixed Deposit need to know about the features and benefits of each of these investment options. For the most part, NPS is typically considered an essential investment option for any working professional who wishes to save up for a comfortable post-retirement life.
The National Pension Scheme is an excellent option for anyone looking to build a substantial retirement corpus while enjoying tax benefits. Its low-cost structure, flexibility in investment choices, and government backing make it a reliable and effective tool for retirement planning. Whether you are starting your career or nearing retirement, investing in NPS can help secure your financial future.
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Yes, NRIs are eligible to join NPS.
To join NPS, obtain a 12-digit Permanent Retirement Account Number (PRAN) by submitting required documents on the NSDL website or at Point of Presence (POP) service providers.
The subscriber registration form is needed to be filled and submitted to the POP along with proof of identity, address, and date of birth.
PRAN is a 12-digit unique number assigned to NPS subscribers, serving as their permanent account number for managing contributions and withdrawals.
Tier-I is a mandatory pension account with restrictions on withdrawals, while Tier-II is a voluntary savings account with no such restrictions.
No, individuals are allowed only one NPS account.
The minimum contribution in NPS is Rs. 6,000 every year.
Failure to make the minimum contribution may lead to freezing of the NPS account.
PFRDA-registered Pension Fund Managers manage the money invested in NPS.
NPS offers a choice between Active and Auto investment options with a range of asset classes.
Active Choice allows subscribers to decide the allocation of funds across various asset classes, including equities, corporate bonds, and government securities.
Yes, subscribers can modify their investment choices in NPS.
Yes, subscribers have the flexibility to change their scheme and pension fund managers.
Yes, subscribers can choose different pension fund managers and investment options for Tier I and Tier II accounts.
Yes, subscribers can defer withdrawing the lump sum until the age of 70.
If a subscriber discontinues the scheme, the account will be frozen, and withdrawals may be restricted.
In the event of the subscriber's demise before 60 years, the nominee or legal heir can claim the accumulated pension wealth.
Subscribers can withdraw money from NPS by submitting withdrawal forms along with necessary documents.
Withdrawal forms must be submitted with relevant documents like:
The maturity period of the National Pension Scheme (NPS) is typically set at 60 years of age. However, subscribers can extend the maturity period up to 70 years, allowing for continued contributions and growth of their pension corpus.
In the unfortunate event of a subscriber's death, the entire accumulated corpus in the NPS account is transferred to the nominee or legal heir. The nominee has the option to withdraw the entire corpus or purchase an annuity for a regular income.
After turning 60, NPS subscribers can withdraw up to 60% of the accumulated corpus as a lump sum, while the remaining 40% is used to purchase an annuity, ensuring regular pension payments throughout retirement.
If an NPS subscriber passes away, the nominee can either withdraw the full NPS corpus, including the 40% allocated for an annuity, or choose to continue receiving the pension through the annuity plan.
Yes, if a husband passes away, the wife (nominee) is eligible to receive a pension if the annuity plan chosen by the subscriber included a provision for the spouse's pension after the subscriber's death.
NPS is independent of employment, so if you quit your job, your account remains active. You can continue contributing to your NPS account and maintain it until retirement or choose to withdraw it after the lock-in period.
Yes, NPS provides a lifetime pension. Upon retirement, the accumulated corpus is used to buy an annuity plan, ensuring regular pension payments for the rest of your life.
NPS (National Pension System) is a government-backed retirement savings scheme that offers tax benefits, flexibility in investment options, and a regular pension after retirement. It aims to provide long-term financial security through disciplined savings.
Yes, the National Pension Scheme and the National Pension System (NPS) refer to the same contribution-based pension scheme. Initially called the New Pension Scheme, it was renamed NPS following the Ministry of Finance Notification No. 5/7/2003-ECB & PR dated 22nd December 2003.
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