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Key Benefits of Investing in National Pension Scheme

Published On Oct 02, 2021

National Pension Scheme or NPS is a voluntary scheme for retirement in India. It is a long-term investment plan under the purview of the Central Government and Pension Fund Regulatory and Development Authority (PFRDA). This pension plan is open to employees belonging to the private, public and unorganised sectors in the country. The only exception under the scheme is for those who belong to the armed forces. The NPS scheme plays a big role in motivating Indians to invest in a pension account at regular intervals while they are still employed. Once retirement is attained, the NPS subscribers can withdraw a certain percentage of the corpus. It must be noted that under the NPS, an account holder receives the remaining amount in the form of a monthly pension after their retirement. The scheme can be easily undertaken by an Indian citizen, working at any job or any location. The NPS account holder is eligible to receive tax benefits as per Section 80C and Section 80CCD of the Income Tax Act.

Key Benefits of Investing in National Pension Scheme

Below mentioned are some of the prime benefits that one can receive on investing in the National Pension Scheme:

  • Voluntary: The National Pension Scheme is a voluntary scheme. An individual can contribute any time during the financial year at their convenience. Moreover, they can change the amount they wish to invest every year. 
  • Simple: The NPS is a simple scheme. Any individual who wishes to make the most of the scheme can simply get their NPS accounts opened by visiting the eNPS website or at any of the Point of Presence or POPs. 
  • Returns/Interest: A portion of the NPS is dedicated to equities, which may not offer guaranteed returns. However, one gets returns much higher than other traditional tax-saving investments such as the PPF. Statistics suggest that until now, the NPS has delivered 8% to 10% annualised returns. 
  • Risk Assessment: Currently, the National Pension Scheme holds a cap in the range of 75% to 50% on equity exposure. The cap is 50% for government employees. In the prescribed range, the equity portion reduces by 2.5% each year beginning from the year in which the investor turns 50 years of age. Whereas, if an investor is 60 years and above, the cap is fixed at 50%. This helps in stabilizing the risk-return equation in the interest of investors. In simple words, it means the corpus is safe from the equity market volatility.
  • Tax Efficient: An NPS account holder can benefit from a deduction of up to Rs.1.5 Lakh (maximum up to Rs. 2 Lakh) for their and their employer’s contribution as per the Section 80CCD(1) that covers the self-contribution and is a part of Section 80C. It must be noted that the maximum deduction an NPS account holder can claim under 80CCD(1) is 10% of the salary. 
  • Early Withdrawal & Exit Rules: Under the National Pension Scheme, if an individual has been investing for at least 3 years, they can withdraw up to 25% for specific purposes. This may include children’s higher education, wedding, house purchase, medical treatment of self or family and more. An NPS account holder can withdraw up to 3 times (with a gap of 5 years) in the entire tenure.
  • Flexible Equity Allocation Rules: The NPS allows an individual to different schemes and split their investments as per their wishes. 
  • Freedom to Change Scheme or Fund Manager: Under NPS, the account holder is free to change the pension scheme. Moreover, they can also change the fund manager if unhappy with their performance.

Also Read:

Top Retirement Planning Concepts Everyone Must Be Aware Of

How to Select the Right Retirement Plan?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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