NPS investment made easy: Here’s everything you need to know
The National Pension Scheme (NPS) is a retirement savings scheme that was introduced by the Indian government in 2004. It allows individuals to invest a portion of their income into an account that is managed by professional fund managers, under the governance of the Pension Fund Regulatory and Development Authority (PFRDA) and the central government. The funds in this account are then used to provide the individual with a regular pension income after they retire. Initially, only government employees were the beneficiaries of this scheme. However, now it is open to all, including unrecognised private sector employees, with the exception of members of the armed forces.
How to Invest in NPS?
Step 1: Check your eligibility
Before you can invest in the NPS, you need to check if you are eligible to do so. According to the NPS rules, only Indian citizens between the ages of 18 and 70 can open an NPS account.
Step 2: Choose a Point of Presence (POP)
A Point of Presence is a bank or financial institution that is authorized to provide NPS services. You can choose any POP-SP that you prefer, popular platforms like Paytm are also a POP-SP! here is the list (https://npscra.nsdl.co.in/pop-sp.php).
Step 3: Open an NPS account
Once you have chosen a POP-SP, you can visit their branch or website and fill out the necessary forms to open an NPS account. Online process will only take 5minutes of your time! You will need to provide some basic personal and financial information, as well as a photograph and proof of identity and address. (Basic KYC documents)
Step 4: Select a pension fund manager
The NPS allows you to choose from a range of pension fund managers who will invest your money in different asset classes such as stocks, bonds, and government securities. You can select a fund manager based on their performance and risk profile. Currently, there are eight pension fund managers in the country:
Aditya Birla Sun Life Pension Management Limited.
HDFC Pension Management Company Limited.
UTI Retirement Solutions Limited.
SBI Pension Funds Private Limited.
ICICI Prudential Pension Funds Management Company Limited.
Reliance Pension Fund.
Kotak Mahindra Pension Fund Limited.
LIC Pension Fund.
Step 5: Start investing
Once your account is set up and you have chosen a pension fund manager, you can start making regular contributions to your NPS account. You can choose to invest a fixed amount every month or make one-time contributions as per your convenience.
Step 6: Monitor and review your investments
It is important to regularly monitor and review your investments to ensure that they are performing well and meeting your financial goals. You can check the performance of your investments on the NPS website or through your POP-SP.
How to Login to your NPS account?
For login, a 12-digit Permanent Retirement Account Number (PRAN) will be the ID, which will be given at the time of registration. While logging in for the fist time to the eNSDL-NPS website, IPIN will be generated which can be used in future to login to your NPS account.
Why should you Invest in NPS?
Investing in the National Pension System (NPS) can provide a number of tax benefits. Contributions to the NPS are eligible for tax deductions under Section 80C of the Income Tax Act, up to a maximum of INR 1.5 lakhs per year. In addition, contributions made by the employer up to lower of :
· 10% of the employee's salary (Basic + Dearness Allowance)
· Gross total Income
· Actual contribution made by an employer.
are eligible for tax deductions under Section 80CCD(2). Moreover, an individual can claim a deduction up to INR 50,000 over and above INR 1.5 lacs under section 80CCD(1B). So, in total contribution to NPS facilitate tax deductions up to INR 2 lacs.
Types of NPS accounts:
There are two types of accounts under the National Pension System (NPS): the Tier I account and the Tier II account.
The Tier I account is a mandatory, non-withdrawable account for individuals who wish to save for their retirement. It offers a number of investment options, including government securities, corporate bonds, and equity funds. Contributions to the Tier I account are eligible for tax deductions.
The Tier II account is a voluntary, withdrawable account that can be opened by individuals who already have a Tier I account. It offers the same investment options as the Tier I account and allows the account holder to make additional contributions and withdraw funds as needed. However, contributions to the Tier II account are not eligible for tax deductions.
Where to Invest?
The National Pension System (NPS) allows individuals to save for their retirement and offers two investment options: auto and active. The auto option is a default investment choice that invests in a pre-determined asset allocation based on the investor's age. The allocation gradually shifts from equity to debt instruments as the investor gets closer to retirement age, with the aim of providing steady returns with minimal risk.
The active option, on the other hand, gives investors the flexibility to choose their own asset allocation and manage their own portfolio. This option is suitable for investors who have a higher risk appetite and want to potentially earn higher returns on their investments. It is advisable to opt this option only if one has expertise knowledge of the investment market. The National Pension System (NPS) offers investors a choice of asset classes in which to invest their retirement savings. These asset classes include:
Equity, which includes investments in stocks of companies listed on the stock exchanges. This asset class has the potential to provide high returns, but also carries higher risk.
Corporate bonds, which are debt instruments issued by companies to raise funds. They offer fixed returns and are considered less risky than equity investments.
Government securities, which are debt instruments issued by the Government of India. They are considered the safest investment option, as they are backed by the government, but also offer lower returns.
Alternative investment funds, which include investments in real estate, infrastructure, and other alternative asset classes. These funds carry a higher level of risk than the other asset classes, but also have the potential to provide higher returns.
Reach out to our experts by visiting our website, taxbuddy.com, for more expert advice on investing in NPS!