National Pension Scheme (NPS): A Comprehensive Guide to Retirement Planning

All about the National Pension Scheme

The National Pension System (NPS), introduced by the central government and overseen by the Pension Funds Regulatory and Development Authority (PFRDA), is a defined contribution scheme designed to provide subscribers with a consistent income during their post-retirement period.

Important features of the NPS

• Any Indian citizen in the 18 – 60 years age bracket can participate in it with a minimum investment of INR 1,000
• NPS accounts can be classified into two types, Tier I which is well suited for retirement planning with a defined lock-in and tax benefit and Tier II that act as a voluntary savings account without lock-in and tax benefits.
• Investment can be made in different asset classes (equity - E, corporate bonds - C, government securities - G, alternate assets) through six fund managers.
• You can claim tax exemption up to Rs. 50,000 under section 80CCD (1B), over and above Rs. 1, 50,000 under section 80C.

Asset Allocation

Investors can choose from one of the two options:

Active choice :

Investor can invest in E-C-G and alternate funds but allocation to E cannot exceed 50%.

Auto choice :

Investor delegates the asset allocation to a lifecycle fund which has a predefined E-C-G allocation based on age.

What makes the NPS attractive

• Cost effective fund management vis a vis other investing instrument.
• NPS account is portable, irrespective of change in employment, city or state.
• Superannuation Fund transfer to NPS account without any tax implication is a plus for retirees.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. The information provided is generic in nature and is for informational purpose only. Please consult your financial advisor before taking any decision.