NPS (National Pension System)
The National Pension System (NPS) is a government-backed voluntary retirement savings scheme designed to help you secure a financially stable future. It's a versatile tool that empowers you to plan for your retirement with flexibility and potential for significant returns.
How it Works:
- Regular Contributions: Make regular or one-time contributions to your NPS account.
- Investment Choice: Select from various investment options, including equities, government bonds, and corporate bonds, based on your risk appetite.
- Professional Management: Your funds are managed by experienced fund managers.
- Retirement: A portion of your accumulated corpus is used to purchase an annuity, providing you with a regular pension income.
- Tax Advantages: Enjoy tax benefits on contributions and returns.
- Diversification: Spread your investments across various asset classes to mitigate risk.
- Portability: Carry your NPS account across different jobs and locations.
- Government Backing: Benefit from the government's oversight and regulation.
- Market-Linked Returns: Potential for higher returns through investments in equities and other market-linked instruments.
Tier I and Tier II Accounts
Tier I Account: The core retirement account, offering tax benefits under Section 80C and 80CCD(1B) of the Income Tax Act. Withdrawals are restricted, ensuring long-term savings.
Tier II Account: A voluntary savings account with no withdrawal restrictions. It doesn't offer tax benefits but provides flexibility for additional savings.
Pension Fund Managers (PFMs)
You can choose from a list of authorised PFMs to manage your investments. These professionals invest your contributions in various asset classes as per your chosen investment option.
Investment Options
Asset Classes
- Equity (E): Invest in stocks of companies, offering the potential for higher returns but also higher risk.
- Corporate Bonds (C): Invest in bonds issued by corporations, providing a balance of risk and return.
- Government Bonds (G): Invest in government securities, offering lower risk and stable returns.
- Alternative Investment Funds (A): Invest in alternative investment funds, such as Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
Investment Choices:
- Active Choice: Allows you to actively choose the allocation percentage among different asset classes based on your risk tolerance and investment goals.
- Auto Choice: A lifecycle fund that automatically adjusts your asset allocation based on your age, reducing risk as you approach retirement.