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  • How to invest in National Pension Scheme

    NPS stands for the new National Pension Scheme launched by the Government of India. The scheme is handled by the Pension Fund Regulatory and Development Authority (PFRDA). It is a retirement savings scheme where both employees and employers contribute towards building wealth which is payable to the employee at the time of retirement. The scheme is particularly designed to encourage systematic savings among employees of both central and state and among common citizens. The scheme was launched on 1st January, 2004 with a purpose of reforming pension in India, and it is the cheapest market-linked retirement plan available in India.

    Who is eligible to invest in NPS?

    All citizens and state/ central government employees falling between the age brackets of 18 to 60 years are eligible for investing in the National Pension Scheme. The pre-existing pension account holders need apply for fresh registration under this new scheme.

    How does NPS work?

    Under the NPS, an individual can invest in different pension funds. The NPS offers three different types of funds wherein you can invest and get good returns at retirement. In case, you don’t mention your preference or choice of fund at the time of registration, your investments will be invested in the default funds handled by the Pension Fund Regulatory and Development Authority (PFRDA). These funds are invested by Pension Fund Regulatory and Development Authority and managed by professional fund managers.

    Any NPS subscriber can switch between different pension funds. But, a fund needs to be continued for a minimum duration of 1 year, before the subscriber switches it from one fund to another. Thus, your contribution to the pension scheme would grow over the years based on returns received from investments.

    Any employee who wants to get a PRAN (Permanent Retirement Account Number) and subscribe for the National Pension Scheme can submit his/her duly filled application form along with all supporting documents.

    Under the National Pension Scheme, a subscriber can open two accounts – Tier-I and Tier-II. Tier-I is the primary account which a subscriber needs to open to be eligible for opening the Tier- II account. The Tie- I account does not allow premature withdrawal unless the subscriber reaches the age of 60. The Tier-II account allows withdrawal as and when the subscriber needs fund.

    Documents to be submitted for NPS

    Any subscriber needs to submit the following documents to get enrolled into the National Pension Scheme:

    • Proof of address ( Any one of the following documents are accepted - Passport , Ration Card with photograph, Bank Passbook , PAN Card, Aadhar Card and Photo identity Card etc. )
    • Proof of Identity (PAN Card, Aadhar Card and Photo identity Card, Passport, Ration Card with photograph, Job Card issued by NREGA, Electricity Bill, Water Bill and Bank Passbook etc. – any one of the these documents will do.)

    How much contribution do I make?

    The following contributions are accepted by the National Pension Scheme:

    • A subscriber needs to make a minimum contribution Rs. 6000 per year. The minimum one time contribution is Rs. 500. These contributions are applicable for Tier-I accounts.
    • Similarly, for Tier-II accounts, a subscriber needs to make a minimum contribution of Rs. 2,000 annually, and Rs. 250 at one time.

    Funds can be contributed either via cheque or cash.

    Benefits of investing in NPS

    By investing in the National Pension Scheme, a subscriber can enjoy the following benefits:

    • It is a voluntary scheme and open for all India citizens falling between the age group of 18 to 60 years.
    • The scheme comes with a lot of flexibilities which allow you to choose your investment options.
    • You can also switch between different investments funds.
    • The NPS account can be operated from anywhere in India.
    • The plan involves transparent investment norms.
    • It helps you plan your retirement and you can be sure of receiving assured returns at retirement.
    • The subscriber can get tax benefits on the contribution made towards this scheme under section 80C of the Indian Income Tax Act.

    There are two options available at the time of making a normal exit from the NPS scheme. Either, the subscriber may use the accrued pension wealth received from scheme to buy a life annuity from a life insurance company enlisted under PFRDA, or withdraw a part of accumulated pension in lump-sum. NPS calculator allows an individual to calculate the amount of pension amount they will get.

    Thus, the National Pension Scheme is an attempt towards finding a viable retirement solution by fostering the habit of savings amongst the citizens and providing adequate retirement income to each and every citizen in India.

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