National Pension System (NPS) all You Want to Know

National Pension System (NPS) all You Want to Knowhttps://themoneyvalue.com/national-pension-system/National Pension System a savings option for your retirement. National Pension System (NPS) means the contributory pension system. Contribution from subscribers is collected & accumulated in an individual pension account. It uses a system called a point of presence. Each individual is allotted a Permanent Retirement Account Number (PRAN). Use this for login into the NPS portal as well. A small contribution each month will really make a difference in long-term.This is not the government pension scheme. As subscriber have more choice, fund houses have to perform well to get more subscriber.

Benefits of the National Pension System
  1. Fully online- I know how difficult to withdraw the Provident Fund earlier days, now they simplified & moving to online. Still, there is a lot of scope for improvements.  This is not case with NPS. NPS fully loaded online portal.  From opening to closing, everything is online. It's super easy. Click here to open an online account. Basically, it's managed by NSDL one of the depository.

  2. Simple & Transparent- Single online form mapped with your PAN & Aadhar.

  3. Regulated by -  PFRDA regulate NPS. Transparent investment norms & regular monitoring and performance review of fund managers by NPS Trust. There is competent authority behind this. Please note it's not the government pension scheme.

Type of account in National Pension System


There are Two type of account Namely Tier I & Tier II. Tier I account have restrictions on withdrawals, where as there is no restriction on Tier II.  But to have Tier II account one has to open Tier I account first.

Investor Choice for investment.


The allocation for investment is available under NPS. By default, The allocation made in 3 asset classes, namely Equities (E), Corporate Bonds (C) and Government Securities (G). Under Active choice, the choice of allocation lies with the investor. However, there is a cap of 50% for investment in equity.  The cap on equity is increased to 15% for government sector.

Auto choice
This option is mainly aimed at assisting individuals who need help to decide asset allocation.

Active choice
This choice is for those who want to decide the asset class allocation on their own.

Schemes available for investments


Different fund houses run the NPS scheme. Each has their own track record from 6 months to 5 years. Here is the list of fund houses.
  • UTI Retirement Solution

  • SBI Pension Fund

  • Kotak Pension Fund

  • ICICI Prud. Pension Fund

  • Reliance Cap. Pension Fund

  • HDFC Pension Fund

  • LIC Pension Fund


As I said subscriber is free to choose the fund house based on their past performance & Expense ratio & other parameters. I recently come across the article which talks about the performance of the fund.

NPS Contribution requirement


Minimum ₹500 per transaction &  ₹6000 for the year is the basic requirement.

NPS the Tax benefit


Employees part of contribution for NPS Scheme is eligible for deduction up to  ₹ 1.5 Lakhs. This is overall of the limit of 80 C. Budget of 2015-16  allowed an extra deduction of ₹50,000 under section 80 CCD(1B).

Budget of 2015-16  allowed an extra deduction of ₹50,000 under section 80 CCD(1B).

On Employer’s contribution Up to 10% of Basic & DA (no upper ceiling) under 80CCD (2). This rebate is over and above 80 C.If you want to read more about tax saving options click here.

Exit Policy


Once subscriber complete 60 years of age, he can exit. Hold on, is a twist.At least 40% of the accumulated pension wealth of the subscriber has to be utilised for purchase of an annuity. This provides monthly pension to the investor. If an investor withdraws the corpus before completing  60 years of age, he will have to invest 80% of the accumulated corpus for buying an annuity. This is only for Tier I account, Tier II account does not have any condition.

Tax on Withdrawal


NPS is currently enjoying EET status. Exempt - Exempt Tax Structure.   This means a contribution to NPS and accumulation/growth won't be taxed. The lump sum withdrawn on exit from NPS willbe . The budget of 2015-16 made the withdrawal on maturity up to 40%  of corpus accumulated will be tax-free.

This covers my article about the NPS, if you like my blog don't forget to subscribe and share.

Hey, How much global exposure you have in your portfolio? read this to know more.

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