The NPS is meant to be a long-term investment option, which is why it comes with a minimum lock-in period of five years. No withdrawals are permitted in the lock-in period, so ensure that you only invest what you can spare.
All types of investments generally come with their own merits and demerits. NPS investment is mostly focused on the retirement of the investor.
The National Pension System (NPS) is a low cost, flexible and portable retirement savings account that offers the lowest cost of buying and exiting a fund along with tax benefits. Contributions made to the NPS are eligible for an additional tax deduction benefit, on voluntary contributions of up to Rs 50,000 under Section 80CCD (1B), over and above the benefits of up to Rs 1,50,000 under Section 80C.
Ajit Kumar, Chief Strategy Officer, KFintech, says, “It caters to investors of different risk profiles by providing fund schemes for equities, corporate and Govt bonds and alternative investments as well. Regulations protect the investors’ interests by allowing them to rebalance the scheme as per their age bracket. It is available to all Indian citizens between the ages of 18 and 75 as well as NRI and OCI investors.”
NPS withdrawal – Revision of threshold limit
An investor can exit NPS before the retirement age. The lock-in period has been reduced from 10 years to 5 years. An investor can withdraw 20 per cent as a lump sum and 80 per cent in form of an annuity. If the corpus is less than Rs 2.5 lakhs, then an investor can withdraw the entire amount in a lump sum.
Note that, investors can continue the NPS even after the retirement age, either by continued contribution or by deferment – till the age of 75 years.
“In case of the death of an investor, the proceeds go to the respective nominees, of which a maximum of three are allowed. Nominees can opt for an annuity or can withdraw the entire amount lump sum,” points out Kumar.
NPS – Who is it ideal for?
The NPS is a Government of India initiative that offers retirement benefits to its subscribers. Kumar explains, “It provides investment options in many different asset classes and these are administered by selected top fund houses and is regulated by the Pension Fund Regulatory and Development Authority (PFRDA).”
Investments in NPS are ideal for a wide variety of people, including, but not limited to people;
- Want to plan for retirement and want to save and invest in anticipation of the same.
- Want high returns on their investment, but do not want higher risks associated with them.
- Want to make use of the tax benefits that NPS provides, while investing and growing their money.
- Want to invest in a vehicle that is tightly regulated.
- Want to continue their investments long term and do not mind being locked in for a minimum time period.
Having said that there are certain things to keep in mind while investing in NPS. “The NPS is meant to be a long-term investment option, which is why it comes with a minimum lock-in period of five years,” adds Kumar. Therefore, no withdrawals are permitted in the lock-in period, so ensure that you only invest what you can spare. Additionally, make sure that you have a nominee for your NPS account, which you can have a maximum of three of.
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