How to Invest in NPS: Step-by-Step Guide for Beginners

In today’s time, securing a comfortable retirement is slowly becoming one of the top priorities for people. They are now focusing on building a retirement fund that will help them cover various expenses like healthcare, leisure activities etc. in the later years of their lives. This money not only gives a person financial independence and peace of mind but also ensures that he/she lives a comfortable life without relying solely on someone.

Table of Content

What is NPS?
Key Benefits of NPS
How to Invest in NPS?

There are several different pension schemes that people have been using for decades. Among all the available options, NPS (National Pension Scheme) definitely stands out due to the large number of benefits it offers.

What is NPS?

The National Pension System (NPS) is an initiative taken by the Government of India to help Indian citizens build a retirement fund. This is a voluntary contribution scheme and can be used by salaried professionals as well as self-employed individuals. This scheme allows an individual to make small investments in a systematic manner till a certain age and offers reasonable market-based returns.

Currently, the National Pension Scheme is being managed by the Pension Fund Regulatory and Development Authority (PFRDA). It was launched on January 1, 2004, and at that time, it was only for new government employees. But in 2009, it was extended to all citizens, offering them a low-cost, tax-efficient way to save money for post-retirement years.

There are two different types of NPS accounts:

NPS Tier I: This type of NPS account is primarily used for building a retirement fund, as there is a limitation on money withdrawal. The minimum annual contribution is Rs. 1,000, with no maximum limit. After 3 years, you can make partial withdrawals of up to 25% of your contributions. A tier-1 NPS account comes with considerable tax benefits. Section 80CCD(1) allows for a deduction of up to Rs. 1,50,000, with an additional Rs. 50,000 deduction payable under Section 80CCD(1B).
NPS Tier II: This type of NPS account also works as an investment avenue and is suitable for those looking for saving options with better liquidity. Just like the tier 1 account, the tier 2 account also has a minimum annual contribution requirement of Rs. 1,000 with no upper limit. There is no restriction on withdrawals, but this account doesn’t give any tax benefits either.

Key Features of NPS

Systematic Investment: NPS allows you to save money in a systematic way and build an adequate retirement fund over the years. The minimum requirement of annual contribution is very low, and there is an upper limit. Therefore, you can invest any amount based on your financial situation and investment goals.
Tax Benefits: In Tier-I NPS accounts, you can save a significant amount of money with tax benefits. Section 80CCD(1) allows for a deduction of up to Rs. 1,50,000, with an additional Rs. 50,000 deduction payable under Section 80CCD(1B).
Portability: Once you register yourself for NPS, you get a unique 12-digit identifier, which is known as PRAN (Permanent Retirement Account Number). This remains valid for a lifetime. So even if you change your job or location, the same NPS account will work.

How to Invest in NPS?

Here’s a step-by-step guide on how to invest in NPS that you can follow:

Online Process

Visit the official eNPS portal, which is managed by PFRDA.
Select the ‘New Registration’ option and choose between Tier I (mandatory) and Tier II (optional) accounts.
Here, you’ll be required to enter your Aadhaar, PAN, and bank account details. This information will be used for verification purposes.
You can choose from the list of available fund managers to handle your NPS investments.
Pick either an auto or active choice for fund allocation in equity, corporate bonds, and government securities.
The next step is to submit your documents (PAN, Aadhaar, and passport-size photo) along with your signature.
Now you can deposit the minimum contribution amount.
After successful registration, you will receive a PRAN, which serves as your unique NPS account number.
Now you can create a password that will be required to manage your account in the future.

Offline Process

For this, you need to find an authorised financial institution (bank or NBFC) that serves as an NPS service provider. Muthoot Finance serves as a POP (Point of Presence) for the NPS and facilitates the application and registration process.
You can visit the branch in person and fill out the NPS account opening form.
Here, you’ll need to provide photocopies of all the relevant documents along with a passport-size photograph
Just like the online method, you’ll be required to select your preferred PFM and investment allocation strategy (auto or active choice).
The minimum contribution amount can be deposited via cheque or demand draft.
nce processed, you will receive a PRAN card, welcome kit, and login credentials for online account management.

If you’re looking for a reliable retirement savings system that can provide a stable income during your post-retirement years, NPS is a great option. Muthoot Finance has been authorised by PFRDA to facilitate the application and registration process of the National Pension Scheme for customers. If you have any queries about NPS, reach out to our team of finance experts. You can also visit your nearest Muthoot Finance branch for more information.