What are the objectives and features of the National Pension System? Explained in this blog.

The National Pension System was initiated by the Government of India to financially secure the lives of Indian citizens after retirement in 2004. The NPS pension scheme seeks to promote a habit of saving for your golden years. In this blog, we’ll discover the details of the NPS scheme, its benefits, and its objectives.

What is the National Pension System (NPS)?

NPS is also known as the National Pension Scheme, and it is a voluntary contribution scheme that promotes the habit of saving for retirement years. NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) under the PFRDA Act 2013. NPS invests in equities, corporate bonds, government securities, and AIFs. Professional fund managers invest the collected money from individuals into diversified portfolios. Any Indian citizen between the ages of 18 and 70 years can invest in NPS.

What are the objectives of NPS?

Let’s have a look at the objectives of the National Pension System.

1. To provide financial security by creating a substantial corpus for the subscriber’s retirement phase.
2. To provide a hassle-free retirement life where a subscriber doesn’t need to worry about their financial aspects.
3. To provide a reliable retirement scheme where youth can invest and plan for their retirement.
4. To address the senior citizen demography within the country.
5. To promote systematic habits of saving and planning for golden years. Subscribers can invest in NPS while they work.

What are the features of NPS?

The National Pension System comes with many features and advantages. It is a regulated, flexible, and low-investment scheme. Let’s unveil its features.

1. Regulated: NPS is regulated by PFRDA, which oversees the transparency and interest of its subscribers.
2. Cost-effective Investment: This is one of NPS’s key benefits. Any subscriber can open a Tier I account with ₹500 only.
3. Tax Benefits: NPS doesn’t only allow you to invest and plan for your golden years, but it also comes with various tax benefits. A subscriber can get up to ₹1.5 lakh tax deduction under Income Tax Section 80 (C). Moreover, there is an additional tax deduction of ₹50,000 under the Income Tax Section 80CCD 1(B). This is over and above ₹1.5 lakh. This makes a total of ₹2 lakh tax deductions under NPS.
4. Flexible: NPS offers to invest in auto and active modes. This means a subscriber can choose between aggressive, moderate, and conservative modes, depending on the subscriber’s risk appetite and investment horizon.
5. Professional Management: NPS investments are managed by professional fund managers. They have years of experience and expertise to manage your assets.
6. Portable: NPS offers portability too. This means an individual’s job or location change doesn’t affect their contributions and returns.
7. Market-linked Returns: NPS has the potential to provide you with market-linked returns. It invests in equities, corporate bonds, government securities, and AIFs. It can potentially generate more returns than traditional savings options such as PPFs and FDs.
8. Pension Security: NPS provides pension security to its subscribers. You can withdraw up to 60% of your financial corpus upon retirement, which is tax-free, and the remaining 40% is used to buy annuities to receive a regular pension.

Looking to learn more about NPS tax benefits? Explained in this blog. Click here.

Final Thoughts

NPS offers many benefits and provides a financial cushion for your golden years. Should you invest in NPS? Yes, it offers tax benefits, long-term savings, and market-linked returns, making it a good retirement option. However, it is advisable to consider your retirement goals, investment horizon, and risk appetite before you start your journey with NPS.