Planning for a secure and comfortable retirement? One of the best ways to achieve this is by learning how to invest in the National Pension System (NPS). With its tax benefits, flexible contributions and diversified investment options, NPS has potential to build a substantial retirement corpus for you.
Benefits of investing in NPS
- Tax benefits: Contributions to NPS are eligible for tax deduction of up to Rs 1.5 lakh under Section 80C and an additional deduction of Rs 50,000 under 80CCD of the Income Tax Act.
- Flexible contributions: You can invest as per your financial capability, starting from ₹500 per contribution.
- Low-cost investment: NPS has one of the lowest fund management charges, making it an affordable retirement planning option.
- Diversified options: You can choose from a range of asset classes, including equities, corporate bonds and government securities.
- Regular pension post-retirement: It ensures a steady income after retirement through annuity plans.
Types of NPS accounts
Tier I
- Primary pension account: This is the default account and is mandatory for all subscribers.
- Withdrawal restrictions: Withdrawals are restricted until the age of 60 years, with certain exceptions for specified circumstances.
- Tax benefits: Contributions are eligible for tax deductions under Sections 80C and 80CCD.
Tier II
- Voluntary savings account: This account provides greater flexibility and can be opened only if you have a Tier I account.
- No tax benefits: Contributions do not qualify for tax deductions.
- No withdrawal restrictions: You can withdraw your savings anytime without any penalties.
Who is eligible to invest in NPS?
Any Indian citizen between the ages of 18 and 65 years can invest in the National Pension System. This includes salaried individuals (both government and private sector employees), NRIs and self-employed professionals such as freelancers and entrepreneurs.
How does NPS work?
1. Account opening: Open a Tier I account with a registered Point of Presence (PoP), such as Axis Bank, or through the eNPS platform online.
2. Contributions: Make regular contributions to your account. The minimum contribution is ₹500 per annum.
3. Investment management: Choose between Active and Auto choices to manage your funds. In Active choice, you can allocate funds among equity (E), corporate bonds (C), and government securities (G). Auto choice follows a lifecycle fund approach.
4. Accumulation: Your contributions accumulate over the years, growing with market returns.
5. Withdrawal: At retirement, you can withdraw up to 60% of the corpus as a lump sum, with the remaining 40% mandatorily invested in an annuity plan.
Documents for opening NPS account
- Proof of identity: Aadhaar card, PAN card or passport
- Proof of address: Utility bill, bank statement or rental agreement
- Photograph: Recent passport size photos
- Bank details: Cancelled cheque for bank account verification
Things to keep in mind about NPS
- Lock-in period: The lock-in period for Tier I account is until you reach the age of 60 years.
- Annuity purchase: At least 40% of the corpus must be used to purchase an annuity.
- Partial withdrawals: They are allowed under specific conditions such as higher education, marriage of children, or medical emergencies.
- Tax implications: Be aware of the tax benefits and conditions under Sections 80C and 80CCD.
How to invest in NPS online?
1. Log in:Access your Axis Bank internet banking account or mobile banking app, open, by logging in with your credentials.
2. Navigate to NPS section: Once logged in, go to the ‘Investments’ section and select the ‘NPS’ option.
3. Enter investment details: You need to select your investment details as below:
1. Choose the investment account.
2. Choose the Pension Fund Manager.
3. Choose the investment style (Auto or active choice).
4. Contribution amount: Enter the amount you wish to contribute and the mode of investment.
5. Personal details verification: Review your personal and nominee details and the payment summary.
6. Application form verification: Verify your application form and complete the payment via OTP to finish the NPS registration process.
Also Read: Cultivate wealth wisely: A guide to nine tax-efficient investment options
Conclusion
Investing in NPS is a prudent step towards a secure financial future. By understanding the benefits, account types, eligibility and the process of how to invest in NPS online, you can make informed decisions and take full advantage of this retirement planning tool.
FAQs
1. How many nominees can account holders add to their accounts?
You can add up to 3 nominees to your NPS account. This ensures that in the event of the account holder's demise, the benefits are distributed as per their wishes.
2. Is it possible for account holders to add nominees to an NPS account?
Yes, you can add or change nominees at any time through the NPS portal or by submitting a physical form to the PoP.
3. How much pension do we get from NPS?
The pension amount from NPS depends on several factors, including the total corpus accumulated, the annuity plan chosen, and the prevailing interest rates at the time of retirement.
4. Can I invest in NPS without a job?
Yes, you can invest in NPS without a job. The scheme is open to all Indian citizens aged 18 to 65 years, regardless of their employment status. This makes it an excellent savings option for freelancers, entrepreneurs and others without a traditional job structure
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
