NPS – Is it a stable retirement plan?

February 3, 2022

When you think about retirement, you immediately have a picture of leisure and a whole lot of time on your hands. Daydreaming aside, it is important to note that your retirement can be however you want it to be. Retirement is one of the phases of your life that requires intricate early planning and disciplined saving, such that your lifestyle does not get compromised when you retire for good. In order to do that, you should look for a stable and sustainable retirement plan that caters to your long term needs. While there are many retirement plans available that are provided by numerous service providers, it is important to choose the right one, because this concerns your potential future, and the lifestyle that comes along with it. Therefore, there are certain questions that might come to your mind. Let’s examine them one by one!

Why is early planning and saving important?
To ensure that your future is safe and you are equipped with the essentials to continue the lifestyle of your choice, it is integral to save enough while you have a steady source of income. While it may seem that your retirement years are far and you have plenty of time, it is true that time flows swiftly, and before you realise, your retirement will be imminent. Moreover, early planning and early saving is important to develop a disciplined habit that enables you to make the best decisions.
For instance, if you start early, the biggest advantage that you have is time, and the opportunity to segregate your savings, so that you do not face the burden of saving a large amount in a small time. Although it is understandable that expenses are more than savings in the younger years, it is important to realise that smart savings will help you fulfil your long term goals efficiently, and also put your retirement planning into a clearer perspective.

What is NPS?
Among the many retirement plans that are available for subscription from multiple similar service providers, NPS, or the National Pension System is among the most sustainable ones. A retirement savings plan that has been introduced by the Government of India, this is a voluntary scheme that enables you to make smart segregated savings during your work life. The motive behind this plan is to create an opportunity that provides adequate income after retirement to Indian citizens.
In the National Pension System, or the NPS, the investments are pooled together into a pension fund which are then further invested into a diversified portfolio that comprises Government Bonds, Bills, Corporate Debentures, and Shares. These investments are made by professional fund managers who are vetted by the Pension Fund Regulatory and Development Authority (PFRDA), under approved guidelines. These investments grow and form a substantial sum over the years, which can then be withdrawn as lump-sum and monthly dividends as pension on your retirement.
Apart from providing substantial long term returns, there are several other benefits that NPS provides, which makes it one of the most sustainable retirement plans.

Benefits of NPS
Flexibility: One of the most lucrative benefits provided by the National Pension System is the flexibility that it comes with. You have the option to choose from a number of investment options, and the fund managers. You can choose your investment option according to the expected returns and monitor the growth of your portfolio. You also have the option to switch between fund managers and investment options keeping in line with the guidelines.
Tax Benefits: One of the most attractive benefits of the NPS, along with letting you make savings for your retirement, is that it also allows you to make tax redemptions letting you save more money. The National Pension System allows you to make tax redemptions of upto 2 lacs per annum as per 80CCD and 80CCD (1B).
Portability: Once you open an account with NPS, you get a Permanent Retirement Account Number (PRAN), which is unique and stays with you throughout your lifetime. This allows you to make your NPS account to become portable between jobs, even if your location changes. This ensures that your corpus remains constant.
Regulations: The National Pension System is regulated by the PFRDA, which is a government body, and follows transparent investment norms. Not only does it build trust, it also ensures that NPS accounts are among the lowest charging accounts in terms of maintenance, which, in the long term can lead to saving substantial amounts of money.
These benefits make the National Pension System, or the NPS, one of the most sustainable and stable retirement plans around. The smart segregated savings, coupled with long term returns and tax benefits make NPS a really worthwhile investment option. If you are looking for a suitable investment plan, you can choose to invest in NPS with KFintech, which is one of the Central Record Keeping Agencies in the country.

Do you know about the differences in Tier 1 and Tier 2 National Pension System Accounts?

January 21, 2022

Retirement is one phase of life that most people look forward to, but preparing for it requires planning and discipline. While there are many retirement plans available, one of the most lucrative and beneficial is the National Pension System. This is an initiative by the central government and is regulated by the Pension Fund Regulatory & Development Authority (PFRDA). In the National Pension System, an investor has the liberty of investing a sum of money, which is then reinvested into the market by PFRDA vetted account managers.
Under NPS, you have the liberty to choose your fund managers and the portfolio that your fund is being invested in. The National Pension System, under PFRDA approved guidelines, invests funds in a diversified portfolio that includes government bonds, bills, corporate shares and debentures. Depending on the kind of risk you wish to undertake, you can choose your form of investment. Your investments would then grow and accumulate, ultimately providing you with returns based on your investments. Being in compliance with the regulatory restrictions, you can also choose to switch between investment options if you are a part of the National Pension System.
When you open an account and become a subscriber to the National Pension System, you are given a Permanent Retirement Account Number (PRAN) which is a unique identifier and remains with you throughout your lifetime.
NPS accounts can be further divided into two tiers:

Tier I Account
Tier II Account

While both the tiers are similar in their structure, functionality and the choice of funds available, there are some differences between them. Following are the differences between a tier I and a tier II NPS account.

Eligibility: To subscribe to the National Pension System, you must be an Indian citizen, between the age of 18-70 years during the time of application submission. Whether you are a resident of India, or an NRI, you are eligible to apply for the National Pension System. You can apply for NPS as long as you comply with the KYC norms as stated in the Subscriber Registration Form, upon which you are provided with a Permanent Retirement Account Number. While these eligibility terms are applicable for Tier I NPS accouns, to get access to a Tier II account, it is mandatory to have a Tier I account.

Lock-In Period: If you are subscribed to the National Pension System and a holder of a Tier I NPS account, you would have a lock-in period till your retirement. Upon attaining the age of 60 years, you would be eligible to withdraw your funds. However, if you hold a Tier II NPS account, you do not have to undergo a lock-in period and are allowed to withdraw your funds at any time you deem fit.

Minimum Contributions: One of the major differences between the two kinds of NPS accounts are the minimum contributions needed. If you hold a Tier I account, the minimum contribution needed for the account to operate is ₹500. However, in case of a Tier II account, the minimum contribution is ₹1000.

Tax Benefits: One of the major benefits of Tier I NPS accounts over the Tier II account is that a Tier I account allows you to enjoy tax redemption benefits of upto ₹1,50,000 under 80C and upto ₹50,000 under section 80CCD (1B). However, a Tier II NPS account does not qualify for these tax redemption benefits.

Withdrawal Taxations: In case of a Tier I account, you can withdraw the entire amount on maturity without any tax being levied on the same. However, in case of a Tier II account, the entire maturity amount, or the corpus, gets added to your account as taxable income and is taxed as per the income tax slab rates.

Despite these differences, you can also find some similarities between Tier I and Tier II NPS accounts, like being able to choose fund managers and the available asset classes.

Tier I and TIer II accounts have their own specific purposes and which one you choose depends on your needs and requirements. If you are a new investor, a Tier 1 account can be beneficial because of the tax benefits and lower minimum investment requirements.

In case you do not have a proper retirement plan in place, you might want to look into the National Pension System service provided by KFintech. We are one of the most accessible National Pension System service providers, associated with 1,000+ corporations and over 75 PoPs. If you are interested in opening your National Pension System account, you can learn more about NPS by KFintech here.

Do You Know the NPS Scheme Eligibility Criteria?

December 25, 2021

The National Pension System (NPS) Scheme is a portable retirement savings account which is flexible, low cost and easy to access. An initiative by the Government of India, it offers retirement benefits to its subscribers. This scheme also provides tax redemption benefits under Sections 80C and 80CCD of the Income Tax Act. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), and being associated with the central government, this scheme provides the benchmarks for trusted and assured returns.

An investor subscribed to the NPS scheme has the option of contributing to their retirement account on their own, in addition to a contribution from their employers in the form of social security. The framework of the National Pension System is built in such a manner that any contributions made by the investor accumulate in their account, which is then invested into versatile portfolios by pension fund managers vetted by the PFRDA.

Other than the main benefit of the NPS scheme, which is being regulated by the PFRDA, a government body, there are several other advantages provided by the NPS Scheme. One of the most crucial, are the tax redemption advantages presented to the investor. Under the Income Tax Act of 1961, all subscribers to the NPS Scheme are eligible to receive tax rebates. Furthermore, subscription to the NPS also provides investors with optimum market-based returns according to their investment choices. The NPS Scheme is also amongst the lowest charging pension schemes that also allows it’s subscribers to access their NPS accounts 24X7, to maintain complete transparency and to provide mandatory public disclosures.

To subscribe to the NPS Scheme, all investors need to be a citizen of India, irrespective of them being Indian residents or not (NRI or OCI). The conditions for eligibility are:

The applicant must be between the age of 18-70 at the time of application.
The applicant must comply with the Know Your Customer (KYC) norms as mentioned in the Subscriber Registration Form. It is mandatory that the documents required for KYC compliance be submitted as and when required.

The NPS Scheme was put into effect by the Central Government from January 1, 2004, for all it’s employees, with the exception of the armed forces. This means that all employees of the Central Government who have joined since, are covered under the National Pension System. Along with the government bodies directly under the Central Government, the employees working under Central Government Autonomous Bodies (CABs) are also covered by the NPS Scheme.

Along with the Central Government, numerous State Governments have also undertaken the National Pension System as a retirement scheme for their employees. To be eligible for the NPS scheme under the State Governments, the particular State Government would have to be among the ones who have adopted the framework. The same format is also applicable for the State Government Autonomous Bodies (SABs).

The National Pension System is also available for corporate entities. For the corporate model to be applicable, the entity must be registered under the Companies Act or under a number of Co-operative Acts. The entity can also be either a Central Public Sector Enterprise, or a State Public Sector Enterprise. The NPS Scheme is available to a corporate entity even when it is a registered Partnership Firm or a registered Limited Liability Partnership (LLP). Proprietorship concerns and trusts are also eligible to be a part of the NPS Scheme. For investors who are a part of the corporate entity, the individual must be between the age of 18-70 years and be in compliance with the KYC norms.

If you are looking for a suitable retirement plan and are eligible for the NPS Scheme, look no further. With a strong physical and digital presence, the National Pension System is one of the most accessible retirement schemes.

Hurry and become a part of this government initiative here at KFintech.

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NPS – Is it a stable retirement plan?

Do you know about the differences in Tier 1 and Tier 2 National Pension System Accounts?

Do You Know the NPS Scheme Eligibility Criteria?