NPS was introduced by the Central Government to help the individuals have income in the form of pension to take care of their retirement needs.
The Pension Fund Regulatory and Development Authority (PFRDA) regulates and administers NPS under the PFRDA Act, 2013.
NPS is a market-linked defined contribution scheme that helps you save for your retirement. The scheme is simple, voluntary, portable and flexible. It is one of the most efficient ways of boosting your retirement income and saving tax. It allows you to plan for a financially secure retirement with systematic savings in a planned way.
Benefits of NPS
- Flexible
- Simple and tax-efficient
- Portable
- Regulated and Transparent
- Dual benefit of Low Cost and Power of Compounding
- Online Access
Types of Accounts
NPS scheme is structured into two tiers
Tier-I Account:
This is the permanent retirement account into which the regular contributions made by the subscriber and/or their employer and are credited and invested as per the scheme/fund manager chosen by you.
Tier-II Account:
This is a voluntary / optional withdrawable account which is allowed only you have an an active Tier I account. The withdrawals are permitted from this account as and when you require.
| Tier – I Account | Tier – II Account |
| Individual Pension Account | Optional Account and requires an active Tier-I Account |
| Withdrawal as per Exit & Withdrawal rules and regulations | Unrestricted withdrawals |
| Minimum contribution to open is Rs.500/- | Min. Contribution to open is Rs.250/- |
| Min. Contribution per year is Rs.1000/- | There’s no restriction on min. Contribution per year |
| AMC charges applicable | No separate AMC charges applicable |
| ----------- | Anytime switching to Tier-I allowed |
Asset Classes
You need to choose the asset classes as well Pension Fund Manager (PFM) along with the percentage allocation to be done in each scheme.
There are four asset classes from which the allocation is to be specified under a single PFM
1. Asset Class E – Equity and related instruments
2. Asset Class C – Corporate debt and related instruments
3. Asset Class G – Government Bonds and related instruments
4. Asset Class A - Alternative Investment Funds including instruments like CMBS, MBS, REITS, AIFs, Invlts etc.
While choosing the asset class, subscribers must note that
- Percentage contribution value cannot exceed 5% for Alternative Investment Funds
- The total allocation across E, C, G and A asset classes must be equal to 100%.
- For Tier-II, you can allocate 100% to Equity.
- For Tier-I, you can allocate 75% to Equity.
Investment Choices
Active Choice
Under Active Choice, you can plan and choose on how your contribution is to be invested. You can choose the PFM, the scheme(s) as well as the percentage allocation in the asset classes.
| Asset Class | Maximum allocation of investment in the asset class |
| E | Up to 75% |
| C | Up to 100% |
| G | Up to 100% |
| A | Up to 5%. Note: Investment in Asset Class A is available only for NPS Tier 1 account. |
Auto Choice
NPS offers an easy option for you to invest in a Life-cycle fund in which the proportion of funds invested across three asset classes that are determined by a pre-defined portfolio and would change as per your age.
As age increases, your exposure to Equity and Corporate Debt tends to decrease under Auto Choice. Depending upon your risk appetite, there are three different options available within ‘Auto Choice’ – Aggressive, Moderate and Conservative.
- LC75 – Aggressive Life Cycle Fund
- LC50 – Moderate Life cycle fund
- LF25 – Conservative Life cycle fund
