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NPS or National Pension Scheme is a Government initiative focussing on employees working in public and private sectors. The Government invests your savings in market-linked funds to facilitate inflation-adjusted pension for a secured post-retirement life. Eligible beneficiaries can invest in two schemes – NPS Tier 1 and NPS Tier 2. Regardless of the scheme type you invest in, you need to open an account first.
Keep reading to learn more about this scheme’s features, benefits and ways to invest.
Take a look at the following features of the NPS Tier 1 scheme:
Investments in NPS Tier 1 are eligible for tax exemptions.
Investors can even invest ₹1000 a year in these accounts.
NPS Tier 1 accounts are the most rudimentary form of NPS accounts.
Investors may get an additional tax deduction of ₹50,000 under Section 80CCD(1B).
Any working professional of government and private sectors can subscribe under NPS.
It is possible for employees to claim up to 20% of tax deductions of their salary that is contributed to NPS.
NPS accounts mature with the subscriber’s retirement or attaining 60 years of age.
After maturity, subscribers can withdraw 60% of the total amount, while the remaining 40% can be used on an annuity plan.
One can withdraw the amount prematurely but under certain terms.
Opening your NPS Tier 1 account is easy. Just follow these simple steps:
Meet these 3 NPS Tier 1 eligibility parameters to open your account:
You have two investment choices in NPS Tier 1:
The former lets individuals control asset allocation with the help of a fund manager. Conversely, the latter is a passive investment mode that builds your portfolio according to your risk appetite.
Individuals can also select from the following 8 asset management companies (AMCs) for portfolio management:
You are free to switch between investment strategies and available fund managers once a year. Based on the performance of the assets, you will get a particular investment return.
As an investor, you need to make the following payments in NPS Tier 1:
NPS returns are the interest that you earn on your contribution. The return rates of the NPS depend on the performance of your underlying assets. Hence, there are no fixed rates for possible returns. Therefore, experts suggest investing earlier to get higher returns over the years.
Here are the lists of returns, as of January 2021, classified under different asset classes. Take a look –
|
Year |
Return Rates |
|
1-Year |
15.33%-18.81% |
|
5-year |
13.11%-15.72% |
|
10-Year |
10.45%-10.86% |
|
Year |
Return Rates |
|
1-Year |
12.95%-14.26% |
|
5-year |
10.29%-10.88% |
|
10-Year |
9.57%-10.05% |
|
Year |
Return Rates |
|
1-Year |
12.46%-14.47% |
|
5-year |
9.27%-10.15% |
|
10-Year |
10.05%-10.64%. |
|
Year |
Return Rates |
|
1-Year |
3.98%-16.73% |
|
5-year |
N/A |
|
10-Year |
N/A |
As a subscriber, you only need to enrol yourself through the e-NPS website.
PFRDA regulates and monitors the National Pension Scheme. Hence, beneficiaries can be assured of getting the minimum pension as promised.
It entirely depends on your investment objective. If you want to enjoy a tax-efficient and cost-effective practice of accumulating savings for your post-retirement days, you can opt for it. As far as the return is concerned, NPS Tier 1’s scheme C has historically shown better performance compared to corporate debt funds. However, keep in mind the limitations of the same before making an informed decision.
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Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.
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