1. Tier-I

A Tier-I NPS account will be opened by default whenever you invest in the NPS. The money you’ll invest will be locked in till you turn 60 but there are exceptions to this rule. 

For example, you can withdraw half the NPS investment in

1. Tier-I

A Tier-I NPS account will be opened by default whenever you invest in the NPS. The money you’ll invest will be locked in till you turn 60 but there are exceptions to this rule. 

For example, you can withdraw half the NPS investment in case you complete 25 years of service. The mandatory lock-in in NPS is enforced to ensure that you have money when you retire.  

Furthermore, you can claim a tax deduction on the contributions you make to your NPS account under Sections like 80C and 80CCD. You can read more about this in our blog: All You Need To Know To Save Tax In 2021

2. Tier-II

You can voluntarily open a Tier-II NPS account if you have a Tier-I account. It doesn’t have a lock-in period and you’ll be free to withdraw your investment at any time. 

Furthermore, you can’t claim any tax deduction for the contributions made to a Tier-II NPS account. However, these flexible caveats don’t apply to government employees who want to claim tax benefits. 

Government employees will have to endure a 3-year lock-in period in case they want to claim tax deductions for the contributions they make to their Tier-II NPS account. 

A. Offline NPS Account Opening

• Visit a registered Point of Presence (POP)
• Get the registration form
• Fill the form
• Attach KYC documents (photo ID, PAN, address proof, and others)
• Submit the form

B. Online NPS Account Opening

• Go to the NSDL website
• Select "New Registration"
• Choose desired options
• Register with Aadhar (or Virtual ID)
• Add relevant information (personal, bank a/c, etc)
• Start investing
  

1. Reasonable Returns

An NPS investment will give you exposure to pension funds, fixed income instruments, government securities, and others, that have generated reasonable historical returns between 8 to 10%. 

This may be better than other traditional assets like Fixed Deposits, Recurring Deposits, and PPF but it isn’t as lucrative as equity funds, international funds, and alternative investments.

2. Relatively Low Risk

The NPS investment is structured in a way that reduces your exposure to risk. Your NPS portfolio cannot have more than 75% exposure to equity. Equity exposure is capped at 50% for government employees.

This percentage reduces by 2.5% every year starting from when you turn 50. Furthermore, investors above the age of 60 can’t have more than 50% exposure to equity instruments. 

Overall, the NPS is known to carry relatively lower risk compared to stock and international investments but is comparatively riskier than traditional investment options. 

Either way, the trade-off reveals itself in the returns which are reasonably higher than traditional investment options but lower than equity and stock investment options.  

3. Tax Benefit

The NPS was introduced to help investors save for a life post-retirement. But there are other benefits to an NPS investment like tax exemptions. 

You can claim a tax deduction of up to ₹1,50,000 under Section 80C for your contributions towards your NPS account per financial year. Thus, NPS is a viable tax-saving option, but it is not particularly efficient. 

However, the devil lies in the details. The tax saving incentive is a by-product of the primary benefit of an NPS investment which is to help you save for retirement. 

The two can often be conflated and may lead to bad investment decisions.

4. You’re (Partially) In Control

You have the option to change your fund manager in case you’re unhappy with your NPS investment’s performance. This option is available for Tier-I and Tier-II accounts. 

Q. What is the NPS scheme and benefits?

Ans. The National Pension Scheme (NPS) is an investment option that is designed to help you build wealth for life after retirement. NPS is backed by the government.

NPS has been known to offer benefits like reasonable returns (8-10%) and tax deductions of up to ₹1,50,000 at relatively low-risk compared to other traditional investments like FDs. 

Q. Is NPS better than PPF?

Ans. NPS has been known to generate better returns on average than PPF. Furthermore, it may give investors tax benefits across two categories, Section 80C and Section 80CCD. 

Q. Can I invest more than ₹50,000 in NPS?

Ans. Yes, you can invest more than ₹50,000 in NPS. There’s no upper limit or maximum investment ceiling on an NPS investment for salaried employees. 

However, self-employed individuals can only invest up to 20% of their gross income. Overall, you can claim a deduction of up to ₹1,50,000 for contributions made to NPS under Section 80C. 

Furthermore, you can claim a maximum deduction of ₹50,000 for contributions made to NPS under Section 80CCD. 

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