National Pension Scheme (NPS)

5paisa Research Team

Last Updated: 14 Sep, 2023 01:20 PM IST


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Most people wonder what is National Pension Scheme. Well, a National Pension Scheme (NPS) is a government-based pension scheme in India. Indian citizens can easily invest till 65 years in this plan, after which they can enjoy a financially-sound post-retirement life. As such, the main goal of the NPS scheme is to build a holistic retirement corpus that allows you to live a comfortable post-retirement life. 

This pension scheme has an interest rate of 9% to 12% per annum. The minimum amount of investment for this scheme is Rs. 250. So, investors can easily leverage the affordable investment amount, to begin with. 

NPS Interest Rate

NPS scheme details mentioned below will help you to invest in the plan mindfully. 

Make sure that before you enrol for this scheme, you read the eligibility criteria carefully and understand what is NPS scheme. 

Tenure of NPS Scheme Investment possible till 65 years of age.
Maturity Amount It heavily relies on the amount you invest initially.
Interest Rate 9% to 12% pa.
Minimum Investment Amount Starts at Rs. 250/-


Features And Benefits Of The National Pension Scheme (NPS)

1. Tax Benefits 

The National Pension scheme opens doors to a variety of tax deductions. This is possible as per the Income Tax Act 1961. 

2. Strong Investment Flexibility

In this form of scheme, investors can also choose to control their investments. This means they can choose exactly how much control they would like to exert upon their timely investments. In case you want a fund manager to administer your investments, you can tap on the option of auto-choice. Also, if you wish to direct your investments, it is best to scout for a specific asset class. 

3. Liquidity Options

There are generally two types of accounts via which you can choose to make contributions. Tier II and Tier I are those accounts, respectively. Both tiers have a sufficient amount of benefits to offer. As such, you can also use them for numerous liquidity purposes. 

4. Partial Withdrawal

Emergencies can occur without warning. In such cases, if you need some financial assistance, NPS benefits can be your helping hand. The scheme allows you to make partial withdrawals over a certain amount of time. 

If you wish to level up your savings for the retirement period, NPS can be your guide. However, it is only useful for those ready to make long-term investments. So, please be careful. 

Types Of NPS Accounts

National Pension scheme India avails two different types of accounts for its users. Tier I and Tier II are the different accounts in operation. While Tier I is a default account, Tier II contributes as a voluntary add-on. Anyone who taps on this scheme must mandatorily select a Tier I account. 

Particulars Tier I Account Tier II Account
Withdrawals Not allowed Allowed
Max NPS Contribution Boundless Boundless
Status Default Default
Tax Exemption Till Rs. 2 Lakh per annum For all government employees- Rs. 1.5 lakhs.
Minimum NPS Contribution Rs. 500 to Rs. 1,000 Rs 250


How To Open An NPS Account?

Now, you can easily open this account from within your home comfortably. You also need not be physically present to open an NPS account offline. So, you can open an online account instead. This helps make the process convenient, quick and hassle-free for you. So, once you have the NPS scheme details, you can go ahead with the account opening. 

Make sure that for your account to open online successfully, it is crucial that you have your Aadhaar, PAN and mobile number linked with your account. If you do not want to undergo a lengthy process, it is better to opt for an OTP generation. Once the OTP is generated, you will receive a notification on your mobile phone. With this, you will get a PRAN during NPS login. 

How Is NPS Calculated?

While you are wondering about National Pension Scheme and how to invest in it, it also becomes prudent to understand how to calculate the scheme properly. Here is how you can make it possible- 

A = P (1+R/n) nt

●    R stands for the interest rate
●    P stands for the principal amount
●    T stands for tenure
●    N stands for the number of times the interest has been found compounded.

Here is a small example of estimating the NPS scheme for your reference- 

You are 40 years old, and your monthly contribution is Rs. 4,000. It is prudent to add to the pension account for at least 23 years more. So, if we assume the interest rate to be 10% per year, you can use the calculator to estimate further. 

How To Use NPS Withdrawn Money?

Amidst all other investments that one can make for pension in India, the NPS scheme is the most preferred. There are several reasons for it. Since it is a long-term financial investment, it acts as a great mode to make long-term savings too. However, NPS does not allow you to make consistent withdrawals, as this can hinder your cash flow. 

As a result, it is possible to withdraw the resulting amount after nearly ten years. As such, exiting NPS is also only possible once. This means that once you withdraw your NPS money years later, you can have a sufficient backup for your retirement days. You can also utilise it for your children’s education, to purchase a new home or for other essential purchases. 

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Frequently Asked Questions

Yes, NPS is a great investment option for all Indian citizens looking to build themselves a sound retirement corpus. You can read the National Pension scheme eligibility to determine if you can avail of this option for your retirement days. 

NPS can help offer good liquidity options, has a flexible investment system and allows partial withdrawals. Tax benefits also come with it. 

Yes, it is possible. However, this is only possible after you have spent nearly ten years under this scheme. After this period is over, it is also possible to exit the scheme in need. 

National Pension Scheme is available right now. You may visit the government portal to gather sufficient information about the same.