What is National Pension System (NPS) & Its Benefits?

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The National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme that enables subscribers to make the best decisions for their future by making systematic deposits throughout their working lives. The NPS aims to instil in residents the habit of saving for retirement. It is an attempt to discover a long-term solution to the challenge of providing appropriate retirement income to every Indian citizen.

Individual funds are pooled in a pension fund and invested in diversified portfolios of Government Bonds, Bills, Corporate Debentures, and Shares by PFRDA-regulated professional fund managers in accordance with authorised investment rules. These contributions would grow and accrue over time, based on the returns on the investment.

Subscribers may use the accumulated pension wealth under the scheme to acquire a life annuity from a PFRDA-empanelled Life Insurance Company at the time of customary exit from the scheme, in addition to withdrawing a portion of the accumulated pension wealth as a lump sum if they wish.

Is it worth to invest in NPS

To address this issue, it is vital to recognise that many people in our nation are unfamiliar with the notion of retirement planning. The vast majority rely on their children and money in their old age. But the importance of having a backup plan cannot be overstated. A guaranteed income in the form of a pension is one of the most affordable and straightforward actions one can take.

What if we told you that this method of securing a pension is completely cost-effective? We’re sure many others laughed at the prior line. NPS – National Pension System – is the name of this incredibly effective retirement plan.

Aside from delivering a retirement income, NPS provides various reasons for you to fall in love with it.

Benefits Of NPS

1. Flexible

NPS provides a variety of investment options and a selection of Pension Funds (PFs) for prudently planning the growth of investments and monitoring the growth of the pension corpus. Subscribers have the option of switching from one investment option to another or from one fund manager to another.

2. Simple

Opening an account with NPS offers a Permanent Retirement Account Number (PRAN), which is a one-of-a-kind number that the subscriber keeps for the rest of his life. The scheme is divided into two levels:

  • Tier-I account: This is a non-withdrawable permanent retirement account into which the subscriber’s regular contributions are credited and invested according to the portfolio/fund manager specified by the subscriber.
  • Tier-II account: This is a voluntary withdrawable account which is allowed only when there is an active Tier I account in the name of the subscriber. The withdrawals are permitted from this account as per the needs of the subscriber as and when required.

3. Portable

NPS provides seamless portability across jobs and across locations. It would provide hassle-free arrangement for the individual subscribers while he/she shifts to the new job/location. Without leaving behind the corpus build, as happens in many pension schemes in India.

4. Well Regulated

PFRDA regulates NPS, which has transparent investment criteria, regular monitoring, and performance reviews of fund managers by the NPS Trust. When compared to similar pension programmes around the world, NPS account maintenance charges are the lowest. When investing for a long-term objective such as retirement, the cost is quite important because charges can eat up a large portion of the corpus over the course of 35-40 years of investment.

5. The dual benefit of low cost and compounding power

Until retirement, pension asset accumulation develops over time with a compounding effect. Because the account maintenance fees are low, the advantage of accumulating pension wealth to the subscriber grows with time.

How to Join?

All Citizen of India:

Option I: Any citizen of India, who meets the stipulated eligible conditions, can open his/her NPS account through online facility –

Through this facility NPS account holders can also make subsequent contributions to their account hassle free using Net Banking/ Debit Card/ Credit Card.

Option II: Entities called as Point of Presence (POP) are appointed by PFRDA for servicing the individual subscribers, including their registration and acceptance of further contributions. The registration form for joining NPS can be collected from any of the Point of Presence – Service Providers (POP-SP).

Government / Corporate Sector:

To enroll under Central Government / State government Sector, you may approach your HR Dept./ Pay and Accounts Office (the Nodal Office for NPS). The formalities to be completed, in guidance and through of the Nodal Office.

Also Read; How to save yourself from a financial calamity?

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