The concept of National Pension Scheme India is to lay out money on a monthly basis in the form of pensions to the patrons who no longer earn. This scheme was started by the Government of India under the Fund Regulatory and Development Authority (PFRDA). It began to draw the Indian citizens under affordable social security scheme. The wealth generated by this scheme totally depends on the contributions made by both employees and employers.
Types of NPS
There are two kinds of NPS:
Tier -1
This is a retirement account that cannot be withdrawn until the exit conditions under NPS are met. A patron who is eligible for a tier-1 scheme has to hand out a minimum of INR 1000 every financial year to withhold his or her account from being frozen. In this scheme, only 20 percent of the contribution can be withdrawn before reaching the age of sixty. The remaining 80 percent of the collected pension corpus has to be utilized for purchase of an annuity for regular monthly pension.
Tier -2
In this scheme, a patron can deposit and withdraw money from their account whenever they desire to do so. The condition to have a tier-2 account is to already possess a tier-1 account. A patron who owns a tier-2 scheme must contribute a minimum of INR 2000 in every financial year.
Scheme and Eligibility
All the citizens (resident or non-resident) of India who are in between the age of eighteen and sixty-five can apply for this scheme. A patron who is opening an NPS account has to appoint a nominee maximum being three for tier-1 and tier-2 account. These nominees can be changed after getting the 12-digit Permanent Retirement Account Number (PRAN).
How to Open an NPS Account?
In order to open an NPS account, one needs to have an account with an entity called Point of Presence (POP). Having an account with POP is not hard as most of the banks in the private and public sectors are linked to POP. Along with the banks, there are a few financial institutions, which are tied up to POP. The location of POP can be accessed on the website of PFRDA. This could be the offline mode of opening an NPS account. eNPS is an online platform to easily open an NPS account. A patron can open an online account with the help of a PAN card. Only one account can be opened by one patron under any circumstance.
Documents Required
There are a few documents that have to be submitted to complete the KYC process. These are:
- Identity proof: PAN card or Aadhaar card
- Address proof: Aadhaar card or passport
- A cancelled cheque
Advantages and Disadvantages
Talking about the advantages of NPS, it is easy for patrons to invest with limited funds as the minimum contribution per annum is INR 1000. There is a tax deduction of up to one lakh fifty thousand. The funds are managed by remarkable fund managers ensuring better returns to the patrons.
A major disadvantage of NPS is that the money invested cannot be withdrawn as per our will. It is noticed that only 25 percent of the total investment made can be withdrawn after ten years of investment. If the entire amount is withdrawn before the age of sixty, then 80 percent of the fund will be used to buy an annuity plan, which sounds very impractical to many patrons. The other disadvantage is that there are other alternatives like mutual funds, which are offering better benefits than that of NPS.
Though NPS is a government-oriented system, which was launched for the benefits of after retirement plan, there is always a confusion to invest in it as it has its own pros and cons. So, the investment decision in NPS must be taken wisely by the patron as there are other alternatives to it as well. But, if the patron is confident of the government and its team of managers and want to have a low risk rate in investment, then investing in NPS will benefit him in the long run.