NPS Tier 2 Account - Eligibility, Requirements & Account Opening Process

National Pension Scheme or NPS began as a retirement investment scheme for Indian Government employees. However, the scheme has been open to all since 2009.

Further, the scheme has two investment accounts, namely Tier 1 and Tier 2. This article will look into the details of the NPS Tier 2 account.

Team Digit

What is Tier 2 in NPS?

Tier 2 is an add-on account to a Tier 1 account. The Tier 1 account is absolutely mandatory, while the Tier 2 account is a voluntary account for savings. The NPS Tier 2 account is associated with greater flexibility, and one can withdraw from the account at any time.

What are the Features of NPS Tier 2?

Some of the NPS tier 2 account benefits and features are as follows:

There is no additional annual maintenance charge for the account.
Moreover, it offers the investor the option for a different investment pattern than Tier 1 accounts.
One can use this account to save money for daily needs.
There is complete freedom for withdrawal from Tier 2 accounts at any time.
Further, there is a separate nomination facility available.
Moreover, one can transfer the funds to a Tier 1 pension account at any time.
Fortunately, there’s no levy of exit load and no minimum balance required.

How to Open an NPS Tier 2 Account?

Only subscribers of Tier 1 NPS accounts can open NPS Tier 2 accounts. The activation of a Tier 1 account is available only for Indians and not for NRIs.

Furthermore, any person can simultaneously open NPS Tier 1 and 2 accounts. Lastly, all government subscribers covered under NPS can activate an NPS Tier 2 account.

Online Method to Open NPS Tier 2 Account

Follow these steps to open a Tier 2 NPS account online.

Step 1: Visit the official website.

Step 2: Enter the PRAN or Permanent Retirement Account Number. You should have received this number at the time of joining the NPS Tier 1 account.

Step 3: Next, enter the date of birth, PAN, and captcha code.

Step 4: Select "Verify PRAN".

Step 5: There is no minimum balance required to be paid.

Offline Method to Open NPS Tier 2 Account.

To open an NPS Tier 2 account offline, visit your bank's branch and apply for the NPS Tier 2 account opening.

What Is the Eligibility of Opening an NPS Tier 2 Account?

The NPS Tier 2 eligibility criteria are as follows:

A person should be an Indian citizen between 18 to 60 years. NRIs cannot open a Tier 2 account.
Moreover, the person has a Tier 1 account and a PRAN account.
However, if you make a deposit, the minimum amount you can make is ₹ 250.

How Does the NPS Tier 2 Investment Work?

There are 2 investment methods available for NPS Tier 2. They are:

Active Choice

A user plays a proactive role and invests in the available investments.

Auto Choice

In this method, the user has to choose the risk profile, and NPS will select the investment units based on risk and age profiles.

Every year the equity portion is reduced, and a movement to debt investments is made so that your assets remain safe.

You can invest up to the age of 60 and defer the account's maturity when you reach 60 years for another 10 years. However, further investments are not needed after deferment.

Minimum and Maximum Investment in NPS Tier 2 Account

Minimum Investment in NPS Tier 2 Account

There is no NPS Tier 2 minimum contribution per year. The minimum initial contribution is ₹ 1000.

Maximum Investment in NPS Tier 2 Account

There is no maximum investment in NPS Tier 2 Accounts.

What Are NPS Tier 2 Return Rates?

There is no NPS tier 2 returns fixed rate of interest.
Instead, the scheme provides returns by investing in 4 NPS asset classes
- Equities
- Corporate bonds
- Government bonds
- Alternative assets
Moreover, you can choose from 8 NPS fund managers and change your selection once a year.

Pros and Cons of NPS Tier 2

The Pros of NPS Tier 2 Are:

There is better flexibility in choosing a registered retirement fund.
There is no withdrawal amount specified. Hence, investors can withdraw at any time.
Moreover, there is a low management cost in comparison to other retirement investment vehicles.

Cons of Investing in NPS Tier 2 Are:

There is a limited number of fund managers from which to choose.
Non-government employees cannot gain tax benefits under Section 80C.

Frequently Asked Questions

All

How to close NPS Tier 2 accounts?

Login to your NPS account, and you can close the account easily. Moreover, you can also visit a Point of Presence, typically the nearest bank, and submit a closure form.

What are the tax benefits of an NPS Tier 2 account?

There are no tax benefits available for an NPS Tier 2 account. Government employees, however, can avail of tax deductions under Section 80C for NPS Tier 2 accounts.