What
is NPS?
The National Pension System (NPS) is a voluntary defined contribution
retirement savings scheme. The scheme enables its subscribers to make
systematic savings through their working life and create a
substantial corpus for their retirement. NPS as a financial
instrument helps to inculcate the habit for saving towards retirement
income amongst Indian citizens.
NPS was initiated by the Government of India by making it mandatory
for all individuals joining Central Government services (except Armed
Forces) on or after January 01, 2004. Gradually, NPS was implemented
by various state governments for their employees and then NPS was
extended to ‘All Citizen of India’ in May, 2009.
In NPS, the contributions made by the subscriber, are pooled in a
pension fund which are invested by PFRDA regulated Pension Fund
Managers as per approved guidelines. A Subscriber may invest his/ her
NPS contribution in any one of the eight Pension Fund Managers (PFMs)
empanelled under NPS. All empanelled PFMs under NPS are well known,
have long standing credibility and are powerful brands in the
financial sector. The fund is invested in a diversified portfolio
comprising of Government Bonds, Corporate Debentures and shares. The
contributions accumulated in the NPS account grow over a period of
time, depending upon the returns on the investments done.
Any individual from 18-65 years of age can join NPS and remain
invested till 70. If you are looking for long term investment and
your objective is to create sufficient corpus for your post
retirement days, the suggested investment option is NPS. Following
are some of the few points, which make investing in NPS a smart
choice, as far as retirement income is concerned:
1. Customized investment option:
NPS allows you to choose from any one of the Pension Fund Managers
(PFMs) appointed by the PFRDA (Pension Regulator) to manage your
pension fund.
2. Portability:
One of the core attributes of NPS is portability of NPS account
number –Permanent Retirement Account Number (PRAN) - across all
sectors and geographies. This implies that you can shift your PRAN
from one employer to another and can also continue self-contribution
during the period when one is not actively engaged with any employer.
3. Low cost structure:
The account maintenance costs under NPS are the lowest as compared to
similar pension products available in India including the retirement
plans offered by Insurance companies and mutual funds. While saving
for a long-term goal such as retirement, the cost matters a lot. Over
a period of 35 to 40 years, the charges can shave off a significant
amount from the corpus. The pension wealth accumulation grows over a
period of time with a compounding effect. The overall administrative
charges being low, the benefit of accumulated pension wealth to the
subscriber eventually become large.
4. Unique Tax Benefit:
Any individual who is subscriber of NPS can claim tax deduction up to
10% of gross income under Sec 80 CCD (1) with in the overall ceiling
of Rs. 1.5 lac under Sec 80 CCE. Apart from that an additional
deduction for the investment up to Rs. 50,000 in NPS (Tier I account)
has been exclusively available for NPS under subsection 80CCD (1B).
This is over and above the deduction of Rs. 1.5 lakh available under
sec 80C of Income Tax Act. 1961.
The
aforesaid points distinctly made NPS an exceptional avenue of saving
for retirement. NPS provides a unique user experience during this
long period - whether it is related to subscriber servicing at
various stages of life, demographic details updation, ease of access
or any kind of service requests being made in the System. Through the
Protean
website one can easily open an NPS account as well as track their
investments in this scheme. The company provides a range of services
to NPS subscribers such as account management and opening, fund
processing, customer service and providing easy pay-out solutions.
