A Guide To Understanding National Pension System (NPS)

The Government of India developed the National Pension System (NPS) as a retirement plan to assist Indian residents in saving for their golden years. If you regularly contribute to this plan, market-linked returns and a pension income will support your post-retirement income.

What benefits does NPS have?

Be proactive about your retirement and build a long-term money accumulation plan with the help of NPS. Here are some of its most notable characteristics:

  • Investment Ease: Investing in NPS doesn’t strain your finances, regardless of your level of experience. Contributions to the NPS can begin as low as Rs 1000.
  • Diversified Portfolio: You can build a well-diversified NPS portfolio by investing in a mix of equities, corporate bonds, and government debt, all of which are available. To maximise your investment profits, you can use this strategy.
  • Choice of Accounts: Investors in NPS choose to invest in Tier 1 or Tier 2 accounts, the first of which offers tax benefits on their investments and the latter of which has no lock-in period.
  • Choice of Fund Management: The Pension Fund Regulatory and Development Authority of India (PFRDI) has enlisted seven fund managers who can serve as your NPS fund manager (PFRDA).
  • Withdrawal of Corpus at Retirement: You can make a tax-free withdrawal of up to 60% of your accrued corpus when you retire. The leftover funds must be used to acquire a pension plan to get a regular pension in the future.

Who should invest in NPS?

Investing in NPS is open to any Indian citizen, both resident and non-resident, between 18 and 60. Those Indian citizens living abroad (OCIs) are also welcome to join the NPS.

An investment plan for retirement can be built using the NPS model. For many people, starting to invest at a young age and staying invested for the long term is motivated by the core premise of investing, which explains why so many people start investing early.

What are the benefits of implementing NPS?

Here are a few reasons why NPS is a popular choice for people who want to retire wealthy while still taking advantage of tax advantages.

  • Save for Your Old Age and Retire Rich: You can build a nest egg for your golden years by investing in the National Pension Scheme (NPS). When you reach retirement age, you can take up to 60% of your savings and use the rest to purchase an annuity, which will pay you a regular pension.
  • Rs. 50,000 in Additional Tax Deductions: In addition to the Rs. 1.5 lakh in tax benefits available under section 80C, your NPS investments qualify you for an additional tax deduction of up to Rs.50,000 under section 80 CCD(1B).
  • Achieve Market-linked Profits: Inflation-beating gains from NPS can help you build a more excellent retirement nest egg than you would otherwise be able to.
  • Advantage of Portfolio Rebalancing Possibilities: A once-yearly adjustment to your NPS portfolio shifts your stock allocations to debt as you get older.
  • Pick a Pension Fund Manager of Your Choice: The following seven PFRDA-appointed pension fund managers are available for you to select from based on their track record:
  • ICICI Prudential Pension Fund
  • LIC Pension Fund Ltd
  • Kotak Mahindra Pension Fund
  • SBI Pension Fund
  • UTI Retirement Solutions Pension Fund
  • HDFC Pension Management Company Ltd
  • Birla Sunlife Pension Management Ltd.

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Paytm Money NPS: Open Free National Pension System Account. At Paytm Money, you can invest in NPS conveniently and …

What are the advantages of the National Pension System (NPS)?

NPS offers a wide range of incentives, from simple documentation to long-term financial appreciation, to its members. A closer inspection is in order.

  • Open an Account in Minutes: With little KYC verification, you may open an NPS account in minutes.
  • Save up to Rs.15,600 in taxes: Section 80 CCD(1B) gives you an additional tax deduction of Rs.50,000 from your taxable income. Over and above the Section 80C tax deductions, this is permitted. You can save up to Rs 15,600 in taxes if you fall into the highest tax rate.
  • In real-time, monitor your NPS portfolio: You may monitor the performance of your NPS portfolio in real-time to make sure it is meeting your expectations.

What kinds of accounts can be opened under NPS?

Tier 1 and Tier 2 accounts are available from NPS.

Savings in the first account are required, while investing in the second account, which serves as a supplemental voluntary savings option, is not. You can only take money out of your Tier 1 account if you’ve been a member for 10 years and have reached retirement age, whichever comes first. However, if you have a Tier 2 account, you can withdraw your money whenever you need it.

Quick Tip: Paytm Money Offers Free NPS Accounts.

You must contribute a minimum of Rs 1000 a year to your Tier 1 account. A Tier 2 account, on the other hand, is not bound by these limitations.

Tax deductions under Section 80 CCD (1) and Section 80 CCD (2) can be claimed for investments of up to Rs 1.5 lakh in Tier 1 accounts (1B). There are no tax advantages to Tier 2 accounts.

How does the NPS compare to other tax-saving investments?

Many popular tax-saving options are available under Section 80C of the Income Tax Act 1961, including five-year Fixed Deposits, Public Provident Fund (PPF), ELSS funds, and the National Pension System. However, it would help if you considered your financial goals, risk tolerance, and investing horizon before deciding.

If you have a debt component in your entire investment portfolio, you may consider FDs and PPFs. However, because of their fixed-income structure, they may not be able to accumulate enough wealth to outpace inflation.

ELSS Funds and NPS are better investments if you have a higher risk tolerance and are looking to build a giant nest egg. It will help you to earn more market-related returns. ELSS funds have a lock-in term of 3 years, whereas NPS has a lock-in period of 5 years. NPS’s Aggressive Life Cycle Fund has a 75 per cent allocation to stocks if you’re looking for a more aggressive strategy.

ELSS Funds that allocate as much as 90% of your invested corpus to equities are available if you need higher equity exposure. The risk profile of ELSS Funds would be higher than that of NPS in this situation.

In other words, you can decide based on the variables above to achieve your wealth growth and tax-saving goals.

How to invest in NPS on Paytm Money?

NPS is the new-age option that enables you to build a retirement corpus in a tax-efficient manner. At Paytm Money, you can invest in NPS conveniently and straightforwardly. Here are a few steps that you need to follow.

  1. Download the Paytm Money app, complete your KYC instantly, and become investment-ready within minutes.
  2. On the app’s homepage, tap on the ‘Invest’ button at the bottom of the screen.
  3. On the ‘Discover Mutual Funds’ page, tap on the ‘NPS’ icon to the NPS Funds page.
  4. Tap on your preferred ‘Pension Fund Manager’ and tap on ‘Invest Now’.
  5. Submit your details to complete your NPS-related verification. After successful verification, you can proceed with payment.
  6. Ensure that you complete your e-sign within 30 days of payment. (This step is required only after 1st payment of NPS on our platform).

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