Planning to invest in NPS under the new rules? 5 essential facts you should know

The National Pension System (NPS) is one of the best investment tools in India for retirement planning. Ever since its rollout in 2008-09, the Pension Fund Regulatory and Development Authority (PFRDA) has undertaken several measures to make the scheme more subscriber friendly.

Ankit Agarwal, MD, Alankit Limited, said that that the pension regulator has during recent days announced many reforms to make the scheme attractive. “The measures include the option to invest up to 75% in equities (under the active choice option) which came into force from October 1, 2018, making partial withdrawals and changing investment grade rating for corporate bonds,” he said.

Here are some facts about the scheme that investors should know before subscribing:

planning to investment

NPS- a defined contribution plan

Under NPS, contributions are paid into an individual’s account by individuals or employers. The contributions are invested in a mix of assets and the retirement corpus depends on the returns from those assets. The returns are market-linked and dedicated pension fund managers take care of investors’ money. This makes it a great investment tool with decent returns.

Potential to generate high returns

The new NPS norms on higher equity investment will help investors grow their retirement funds. “For the millennials and young professionals, NPS is a profitable option. Apart from tax saving and retirement benefits, it also allows them to invest wisely and earn higher returns. This is the right time to consider NPS to build a substantial future corpus while enjoying excellent tax benefits,” Agarwal said.

Here are some changes made by the PFRDA in the scheme and how they will impact subscribers:


It’s completely portable

NPS comes with individual retirement account with portability. “If you join someplace new job NPS allows you to transfer your account accordingly,” Agarwal said.

It allows 60% withdrawal at the time of maturity

NPS does not allow withdrawal of the entire amount at the time of retirement. You can withdraw only 60% of the contribution as the balance 40% needs to be invested in an annuity plan. The annuity pension starts at the age of 60. However, you can open a Tier-2 account anytime during the accumulation phase which allows you to withdraw money from your account at any time.

It’s a tax saving tool

NPS also allows individuals to get an additional tax benefit of Rs 50000 under section 80CCD (1B).  This amount can be claimed for deduction during a particular financial year. You can claim the deduction over and above the Rs 1.5 lakh limit as prescribed under the section 80C of income tax act.

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