NPS – National Pension System
What is a NPS Account?
The National Pension System was formed by the Government of India in the year 1999. This was done to help individuals save money in a systematic form so that the fund can be used after their retirement. The NPS is a voluntary entity which is a defined contribution retirement savings scheme to save money for post – retirement needs. The NPS provides the volunteers who have invested into the savings scheme with a high return so that a good amount of savings are accrued in order to live their post retirement life easily in terms of finance.
Who can take it up?
The NPS scheme fund can be taken up by both individuals residing in India as well as non – resident Indians. Any person between the ages of 18 years to 60 years is eligible and suited to get their National Pension System Scheme fun going.
Kinds of National Pension System Scheme funds
The national pension system has three types of scheme funds for the volunteers to save on. Any one of the following 3 can be chosen by the volunteer so get high returns:
➢ Corporate funds
➢ Government securities
How does it work?
After investing into the national pension system scheme, the volunteer or the investor is handed a PRAN. The PRAN is your Permanent Retirement Account Number. The CRA – Central Record Keeping Agency is the agency that keeps the records and provides the volunteer with the PRAN. All this can easily be done online if you have an electronic device with an internet connection. All the transactions can be easily performed online with just an identification user name or number and a password to keep your records safe.
How to make the investments?
There are 2 tiers of accounts into which people can invest into for their retirement fund. One can open a NPS account in tier 1 for a really nominal cost which makes investing into a NPS fund so easy. You can start of your NPS account for a really less cost and need not worry about shelling out a huge sum of money just to get started with saving for your post – retirement savings. Even the tier 2 NPS account can be opened for a really less amount but it is more than what you pay for the tier 1.
- NPS Tier 1 account opening investment cost – INR 500
- NPS Tier 2 account opening investment cost – INR 1000
Now, there are 3 different way out of which you can choose one to deposit this money into the national pension system scheme, they are as follows:
- Demand Draft
Options of investments into the National Pension System
There are various instruments into which the funds of the volunteer can be invested into. These options are known as Asset Classes.
- Asset G
- Asset C
- Asset E
Asset G – Government
The investments made into asset option are put into government securities like GOI bonds as well as State Governments.
Asset C – Credit Risk
The investments made into asset option are put into securities which generate fixed income like FDs – fixed deposits, liquid funds, corporate debts, etc.
Asset E – Equity
The investments made into asset option are put into instruments which are equity based. The investments made into equity instruments have a high return but it comes with a high risk as well. This is in comparison with the returns and risks of Asset G.
The national pension system – NPS calculator helps in calculating the estimate amount of fund that you will be getting after the end of the NPS scheme at the age of 60 after years of investing and accruing the money. This amount is an approximate cost and should not be completely thought of as an exact amount.
The national pension system – NPS calculator will also calculate the amount of the entire interest that the volunteer has earned over the years of their investments.
The NPS calculator will need some information about your details so that the calculation can be done. The following information has to be fed in correctly:
- The retirement age of the volunteer
- The amount of the investments that are being done monthly
- The current age of the volunteer
- The estimated interest rate of the annuity
How is the NPS calculator beneficial?
The National Pension System – NPS calculator calculates the estimate amount of returns which helps in knowing an approximate amount for your return so that you can have an idea of around what to expect.
Knowing the approximate amount can also help you to increase your investments to make your returns higher in case you are not satisfied with the returns you would be getting.
The Income Tax Act provides certain tax benefits to the volunteers who sign up for the national pension system schemes. There are 3 types of tax exemptions that can be made.
Section 80 C C D – 1
A tax exemption of Rs. 1.5 lakhs or less can be made under this section of the Income Tax Act.
Section 80 C C D – 1 B
A tax exemption of a tremendous up to Rs. 50,000 (voluntary contributions into the National pension system scheme) can be made under this section of the Income Tax Act.
Section 80 C C D – 2
A tax exemption of 10 % of amount of the volunteer’s basic salary (invested into the national pension scheme) can be made under this section of the Income Tax Act.