National Pension System (NPS) or National Pension Scheme Overview

By | June 20, 2013

What is National Pension System (NPS) ?

National Pension System (NPS)Government of India established Pension Fund Regulatory and Development Authority (PFRDA) by the year 2003 to promote old age income security. From 2004 it has been implemented to Government Employees. From 2009, National Pension System (NPS) has been extended to all eligible Indian Citizens

Who Can Join?

A Citizen of India including NRI between 18 to 60 Years of age..

Persons with unsound mind, undischarged insolvent and preexisting NPS account holders cannot join.

 What are the benefits of NPS?

Fund management and other charges are very cheap in the industry.
Regulated by PFRDA
Can be operated from anywhere in the country.
Option to increase or decrease the contribution over minimum contribution.
Since Tier 1 has limited exit option, develops a habit of saving and helps to achieve the goal of a retirement corpus.
Tier 2 provides full liquidity

Types of Accounts

Tier 1 Account:
It is a compulsory retirement account which can’t be withdrawn.

Tier 2 Account:
It is a voluntary account. Contributions are withdraw able as per the wish of the contributor.

Details of Contribution

Tier 1 Account:

Minimum Contribution per year: Rs. 6000/-
Minimum Amount per Contribution: Rs. 500/-
Minimum number of Contribution per year – 01.

Tier 2 Account

1. Minimum contribution at the time of account opening – Rs.1000/-
2. Minimum amount per contribution – Rs.250/-
3. Minimum Account Balance at the end of FY – Rs.2000/-

4. Minimum number of contributions in a year – 01.

Types of Funds Available

E- Investment in Equities.
C- Investment in Fixed income securities other than government securities.
G- Investment n Government Securities.

Subscribers can choose Auto choice life cycle fund

When and How can the Subscriber withdraw the account?

Funds invested in Tier 2 account can be withdrawn any time as per customer wish.

For Tier 1 Account.

Any time before the age of 60.

80% of the fund should be utilized to purchase life annuity from any IRDA regulated life insurance company and the remaining 20% can be withdrawn as lump sum.

On attaining age of 60 Years and up to 70 years.

At least 40% of the fund should be utilized to purchase life annuity from any IRDA regulated life insurance company and the remaining 60% can be withdrawn as lump sum or in a phased manner between the age of 60 and 70.

On Death

The nominee can either receive the 100% of fund value as lump sum  or can continue the NPS account by subscribing with KYC norms.

Tax Benefits

Applicable as per prevailing income tax act amendments.

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