The National Pension System (NPS) is a government-backed investment scheme that helps you create a retirement corpus. The scheme was established in 2004 by the Government of India, initially catering to civil servants. However, NPS was made available to the general public in 2009. The government has set up NPS, so that account members get a regular paycheck even after retirement, in addition to substantial investment gains.
But the benefits of investing in NPS don’t end here. Let us discuss some important reasons why you should invest in NPS.
1) It is backed by the government
The primary benefit of National Pension System is that the central government backs it. PFRDA (Pension Fund Regulatory and Development Authority), a government authority, regulates NPS. Professional fund managers are responsible for administering the funds in accordance with the regulations outlined by the PFRDA. This means the fund has strict guidelines, and every change in the portfolio will be viewed with a higher amount of scrutiny. This adds an extra layer of security to your investments in NPS. At the same time, it is important to understand that NPS invests in market-linked securities, which also come with higher risk potential.
2) Get assured pension
NPS guarantees a pension as immediately as you reach the age of 60. The more corpus you have amassed, the larger your pension sum will be. With an entrance age of as little as 18 years, the program enables you to begin preparing for a happy retirement at an early age. When you reach the age of 60, you may take a portion of your accrued cash while the remainder is invested in an annuity plan that will give you a regular income. If you die, your beneficiary has the option of continuing the pension plan or withdrawing the sum from the annuity and closing the account.
3) Tax benefits
Another significant advantage of NPS is the extra Rs. 50,000 tax rebate in addition to the Rs.1.5 lakhs under Section 80C. You may claim a tax deduction for investments in your Tier I account up to Rs. 50,000 under Section 80CCD (1B). Every year, this results in an extra tax reduction of Rs. 15,600.
There is no tax on withdrawals for the 60% lump sum withdrawal and the 40% (this is minimum as per regulation) annuity purchase is without GST. Higher the annuity portion, higher could be the chances of better pension amount. So, if you pick a lump sum withdrawal of more than 40%, just that part will be taxed.
4) Easy management
NPS offers a highly comprehensive online gateway that enables you to build and maintain your NPS account online. eNPS is a user-friendly interface that provides various tools that allow you to manage your NPS account from the comfort of your own home.
Even banks and NBFCs who provide NPS accounts have online access for easy NPS account maintenance. When you subscribe for NPS account online, you are assigned a PRAN number, which serves as your pension account’s identification number and helps login into any related service.
NPS is one the most comprehensive investment schemes. For best results, talk to an investment advisor and plan your investment according to your goals.