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What Is the NPS (National Pension Scheme)?
The National Pension Scheme is a defined-contribution retirement savings scheme, which is sponsored by the government, meaning that the NPS was introduced by India’s central government to help people generate an income in the form of pension to manage their retirement needs. It is a market-linked scheme and with the NPS interest rate ranging from 9 to 12%, the NPS pension scheme offers one of the most efficient ways to save tax and boost your retirement income.
Salient Features of the Scheme:
It is a voluntary contribution scheme.
It has a facility available for savings and investment so that finances for one’s retirement are taken care of.
The contributions of all account holders are collated and invested by fund managers of the Pension Fund Regulatory and Development Authority (PFRDA).
The NRI investor has two options:-
a. Active Choice: The NRI decides the asset classes that the money should be invested in and the allocation percentage in each investment type.
b. Auto Choice:Investment is done on behalf of the NRI based on his age.
Under the Scheme, there are two sub-accounts available:-
a. Tier – I accounts: Withdrawals are allowed for up to 25% of the account holder’s contribution. There are some rules around withdrawal and exit options.
b. Tier-II accounts: These are like savings accounts. The NRI can withdraw whenever he/she wants from these accounts.
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Who Can Invest in NPS? Eligibility, Benefits, and Tax Guide
To be eligible to invest in the NPS pension scheme, individuals must meet the following criteria:
- Age: Applicant must be between 18 and 70 years of age.
- Citizenship: Both Indian residents and non-resident Indians can apply.
- Account: Applicant must not have an existing NPS account.
- KYC: Applicants must meet the KYC requirements as specified in the Subscriber Registration Form (SRF).
- Only for Individuals: Persons of Indian Origin (PIOs) and Hindu Undivided Families (HUFs) are not eligible for the NPS.
Benefits of the National Pension Scheme
There are several benefits of the NPS, which include:
- Flexibility: The ability to choose your pension fund managers and investment options based on your financial goals, personal preferences, and risk appetite.
- Portability: Offers a convenient investment option for everyone, including those who change their employment or residence frequently, as your NPS account can be transferred between jobs and locations easily.
- Affordability: Low fund management charges and administrative costs, which helps ensure that the NPS remains a cost-effective way to save for your retirement.
- The Power of Compounding: The NPS is a long-term investment option which allows you to harness the benefits of compounding. The returns earned by your investment are used to generate further returns, leading to significant capital growth over time.
- Structured Savings Plan: The NPS offers a disciplined approach to creating a corpus for your retirement, which helps you avoid impulsive spending as well.
- PFRDA-Regulated: The NPS is a scheme that is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which ensures security and transparency when you invest in the scheme.
- Tax Benefits: Investments made towards the NPS scheme are eligible for tax deductions under the Income Tax Act.
How to Open an NPS Account in India?
Online Registration
- Visit the eNPS Portal which is managed by Protean eGov Technologies Ltd.
- Choose between Tier I (mandatory registration) and Tier II (optional registration) accounts.
- Enter your KYC details, including the PAN, bank account information, and Aadhaar (if applicable).
- Select the preferred fund manager and select between the auto and active choices for asset allocation between equity, government bonds, and corporate bonds.
- Submit scanned copies of the required documents. Like your PAN, photographs, signature, and Aadhaar (if applicable).
- Make the initial contribution by paying the minimum required amount, which is generally Rs 500 for Tier I and Rs 1000 for Tier II.
- After successful registration, you will receive your unique NPS account number, or PRAN.
- Create a password to manage your account online.
Offline Registration
- Find your nearest Muthoot Finance branch, which is an authorised Point of Presence (POP) service provider.
- Obtain the PRAN application form from Muthoot Finance or download it from the NPS Trust Website.
- Fill the application form with your details and include your photos, signature, and preferences for investment schemes.
- Submit the required KYC documents, including your identity and address proofs.
- Submit the completed application and required documents to Muthoot Finance.
- You will be registered with the Central Recordkeeping Agency (CRA), and you will be provided with your PRAN.
Complete Guide to NPS Interest Rates
It is important to understand that there is no fixed NPS interest rate within the National Pension Scheme. The range of returns is calculated with 9 to 12% CAGR, with the interest rate depending on the performance of your chosen assets, based on the asset class and the amount of contribution. Here are the average interest rates you can expect based on asset class:
| Asset Class | 1-Year Return (%) | 5-Year Return (%) | 10-Year Return (%) | |||
|---|---|---|---|---|---|---|
| Tier I | Tier II | Tier I | Tier II | Tier I | Tier II | |
| Equity | 15.75 | 15.76 | 15.38 | 15.22 | 13.51 | 13.40 |
| Corporate Bonds | 7.79 | 7.71 | 7.83 | 8.10 | 8.59 | 8.62 |
| Government Bonds | 7.92 | 7.79 | 8.76 | 8.38 | 9.07 | 8.90 |
How Are NPS Returns Calculated?
As the interest rate of the NPS varies based on multiple factors, the returns also vary. What you earn also depends on numerous aspects, like your investment preferences, NPS tier, and your nature of employment (corporate vs government). These are the elements that contribute to the diverse returns for NPS investors. Here is the basic formula to calculate NPS returns:
R = A (1 + r/n)nt
Where:
- R = Amount
- A = Sum Invested
- r = Rate of Interest
- n = Instances of Compounded Interest
- t = Number of Years
Apart from the asset classification of your investments, how early you start investing also impacts your returns.
What is the NPS Vatsalya Scheme and How Does It Work?
The NPS Vatsalya Scheme, announced in the Union Budget 2024, is designed to secure the financial future of minors by enabling parents or guardians to invest in the National Pension System (NPS) on their behalf. The guardian manages the account until the minor turns 18, ensuring long-term savings and financial stability.
Here's how it works:
- Step 1: Visit the eNPS website.
- Step 2: Select the “Register Now” option under the “NPS Vatsalya (Minors)” section.
- Step 3: Provide the required information about the minor as well as the guardian’s credentials.
- Step 4: Submit necessary documents such as proof of identity, proof of address, and the child’s birth certificate.
- Step 5: Complete the first payment to activate the account.
- Step 6: Once registration is successful, a Permanent Retirement Account Number (PRAN) is generated for the minor.
Eligibility & Features of the NPS Vatsalya Scheme
The NPS Vatsalya Scheme offers a secure and flexible way for parents or guardians to build long-term savings for minors. Listed below are the key features that make this scheme beneficial:
- The scheme is designed specifically for subscribers below 18 years of age, with accounts managed by parents or guardians until the child attains adulthood.
- Enrollment is quick and convenient through multiple modes, including Aadhaar and DigiLocker.
- The scheme is open not only to Indian residents but also to Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs).
- Contributions to come from NRE and NRO A/c. (Applicable only for NRI/OCI Subscribers)
FAQs
Muthoot Finance, as a registered Point of Presence (POP), has a vast network of branches across India, making it convenient for investors to open and manage their NPS accounts. Additionally, the whole process of opting for the NPS scheme and managing it afterwards is very streamlined and hassle-free with Muthoot Finance.
There are two main types of NPS accounts available at Muthoot Finance: Tier I and Tier II. Tier I accounts allow withdrawals for up to 25% of the account holder’s contribution and there also are some rules around withdrawal and exit options. On the other hand, Tier II accounts are like savings accounts, allowing whenever the account holder wants it.
To join the National Pension Scheme (NPS) through Muthoot Finance, the age requirements are as follows:
- Minimum Age: 18 years
- Maximum Age: 60 years
This means that individuals who are at least 18 years old and not older than 60 years old can enrol in the NPS offered by Muthoot Finance.
To check the status of your National Pension Scheme (NPS) account with Muthoot Finance, you can log in to your NPS account through the "My NPS" portal, where you can manage your contributions and check your account status directly. In case of any query or help, you can contact our customer care service or visit your nearest branch.
For Tier I NPS accounts, you must contribute a minimum of Rs 500, with the minimum annual contribution standing at Rs 1000. For Tier II NPS accounts, the initial contribution must be a minimum of Rs 250 and there is no minimum annual limit. There are no upper limits on contributions for both accounts.
- Identity Proof: Aadhaar card, PAN card, passport, driver's license, voter ID card, NREGA job card, etc.
- Address Proof: Aadhaar card, passport, driver's license, voter ID card, bank account statement, etc.
- Photograph: Recent, passport-sized.
- Cancelled Cheque: For bank account verification.
- Scanned Signature
- Online Payment: Initial contribution payment.
Yes. You can open an NPS account online, through the eNPS web portal, or offline, through a Point of Presence (POP) service provider, like Muthoot Finance.
NPS offers flexibility, tax benefits, and potentially higher returns and is considered to be a good option for retirement savings. However, whether the scheme is better than other plans will depend on your individual circumstances and financial priorities.
Yes. It is possible to withdraw money from your NPS account before retirement, but only under specific circumstances, with certain restrictions. These circumstances include withdrawals for specific reasons, like marriage, education, or medical emergencies, but you can only withdraw up to 25% of your contributions for no more than three times throughout the tenure.
Yes. Designed to help people with their retirement planning and regulated by the PFRDA, the NPS is generally considered to be one of the safest options for long-term investment.
Yes. NRIs are eligible to invest in the National Pension Scheme through Muthoot Finance, which has been authorised by the PFRDA to undertake all relevant activities as a Point of Presence.
From a Tier I NPS account, a partial withdrawal of up to a maximum of 25% of your contributions can be made for a maximum of three times. Withdrawals are allowed only after a minimum of 3 years of NPS participation. Tier II NPS accounts come with more flexibility and offer unlimited withdrawals.
Yes. You can nominate up to three individuals in Tier I and II NPS accounts. If you nominate multiple people, you will be required to specify what percentage of your savings is to be allocated to each nominee, while ensuring that the total allocation adds up to 100%.
Yes. The NPS account can easily be transferred with your job or location. Your unique account number will remain the same, so you can continue contributing to your existing NPS account without worry.
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