Talking about NPS scheme During old age, when people have no regular income source, pension plans provide financial security and stability. A retirement plan ensures that people can enjoy their retirement years and maintain their living standards. The benefits of a pension scheme are that you can invest and accumulate savings. You will receive a lump sum amount as a regular income through annuity plans upon retirement. The National Pension Scheme is an investment and retirement scheme establish by the government of India.
The Pension Fund Regulatory and Development Authority regulate and administer this NPS scheme. The Government of India has specifically launch the NPS scheme for senior citizens to provide them with financial security. Investing in this safe market-base scheme makes it possible for individuals to plan their retirement time efficiently by investing in the NPS scheme, which provides impressive long-term savings options.
How does NPS work?
Besides the provision for the National Pension Scheme, also known as the National Pension System, the National Pension Scheme is open to all the employees in the public sector, the private sector, and even the un organize sector, except for those who are in military or armed forces. NPS Subscribers can contribute to a fund that invests in market-link instruments, such as debt and equity, and the performance of those assets determines returns.
NPS Eligibility Criteria
- The NPS can be open by anyone who is an Indian citizen.
- Opening an NPS account requires a minimum age of 18 and a maximum age of 65.
- KYC compliance is require of the applicant.
- The applicant must have an existing NPS account.
Benefits of the NPS Scheme
Returns/Interest
A portion of the funds contribute to the NPS scheme is invest in equities, which, compare with other investment options, such as PPF, offer higher returns. A scheme offering an interest rate of 9%-12% is the best option for people who want to accumulate funds over the long run and live financially secure after retirement.
Tax Benefits for NPS
It is another benefit that is offer to the individual under the NPS. Contributions made in the NPS scheme are eligible for tax exemption up to the max limit of 1.5 lakh rupees. Furthermore, in the National Pension Scheme, both the employer and the employee can claim to be exempt from the statutory tax on their contributions.
Withdrawal rules after 60 year
Upon retirement, as part of the NPS scheme, the individual will not be able to withdraw all the accumulate funds from the account. To qualify for this scheme, there is a requirement that at least 40% of the collect funds must be set aside to pay a regular annuity from a PFRDA-register insurance company. There is no tax on the remaining 60% of the accumulate funds.
Equity allocation rules
The investments made in the NPS are made into a different scheme. Equity allocation rules allow investors who invest in equities to allocate 50% of their assets to equity. Depending on the type of investment that you choose, there are two options available, namely active choice and automatic choice. As an active choice, the investors can select their funds and split the investment according to their risk appetite and suitability. In contrast, in the auto choice, the investment is made for the investor base on risk profile and age.
Rules for premature withdrawals and exits
Considering that NPS is a pension scheme, it is mandatory to invest in it until you reach the age of 60. Nevertheless, partial withdrawals are permit after three years, similar to PF schemes since the date on which the account was open.
NPS Returns
There is no fixed rate of interest in a national pension scheme. In contrast, the returns are base on the fund’s performance in the market as the investments are made through market-linked securities. The contribution toward the NPS scheme can be invest through different pension funds in four asset classes: equities, government bonds, corporate bonds, and alternative assets. The returns these pension funds offer are determine by the market performance of the stocks and bonds they hold.