How to Invest in NPS: Benefits of Investing in NPS

NPS Tier II Account

A Tier II NPS account can only be opened if you have a Tier 1 NPS account. It is a voluntary investment account that can be opened by making a minimum deposit of Rs 1000. After the account is active, you can make contributions of any amount that you are comfortable with. One of the biggest drawbacks of Tier II NPS accounts is that they are not tax exempt. In other words, Tier II accounts don’t enjoy as many benefits as Tier 1 NPS accounts.

The Benefits of Investing in NPS

It’s essential for the readers to understand the benefits before they understand how to invest in NPS.

Every subscriber investing in this scheme works with a PRAN, which is allotted to every subscriber. The scheme is backed by the Government of India with the aim of making people financially secure during their golden years of retirement. Hence, there are some attractive benefits that one can enjoy by investing in NPS.

· Low-Risk Investment 

The scheme is backed by the Government of India regulated body PFRDA, which means that the norms of this scheme are pretty transparent and are also regularly monitored by PFRDA.

· Voluntary 

There is no cap on the amount of investment in the NPS scheme. You can make as much of a contribution as possible towards the scheme at any time. 

· Economical

Since the minimum contribution required to invest in an NPS account is Rs 500, it becomes a low-cost investment scheme.

· Flexibility

To operate your NPS account, you require a Point of Presence (PoP) to manage your NPS account. The fund managers are in charge of investing your money in various asset classes such as bonds, stocks, and government securities. You have the flexibility to change your PoP anytime during the tenure of the scheme. 

· Portable 

Your NPS account is not subjected to a particular company, city, or state. You can easily manage your NPS account regardless of where you live, which state you live in, or what type of company you work for.

· Tax Benefits

This is one of the most talked about benefits of an NPS scheme. The NPS offers a triple tax benefit, which means the amount invested, interest earned, and the maturity amount are all tax-free.

Key Features You Should Know Before Investing in NPS 

Investment experts consider NPS to be one of the greatest schemes on the market because of its stability, numerous tax benefits, and higher returns. An individual can invest in a pension scheme at regular intervals using the NPS scheme. Investing in a retirement scheme is becoming increasingly crucial for paid employees in the private sector who are not entitled to a monthly pension from their employer.

You can start your NPS account with as low as Rs 1000 annually, but there is no minimum or maximum amount. According to your earnings and expenses, you can invest as much as possible in the scheme. The more you invest, the better return you can get after retirement.

· Easy to transfer 

Whether you change a job or city, you don’t have to worry about leaving your accumulated money behind. NPS accounts are easily transferable to other companies and cities. 

· Returns

If past is any indication, NPS accounts are known to offer 8% - 10% annually. This kind of return is not possible to get in other low-risk investment schemes. 

· Compounding Benefit

Since the money is locked till 60 years, the investor is attached to the scheme for a long period of time. 

How To Open an NPS Account?

There are two methods through which you can open an NPS account - Online and Offline. 

To open the NPS account online, visit the PFRDA Website and follow these steps:

• Select “Register with Aadhaar” from the 'Registration' drop-down menu.
• Enter your Aadhaar number and select "Generate OTP."
• Your registered mobile number will receive the OTP.
• Along with your personal information, nomination information, and bank information, enter the OTP.
• Your Permanent Retirement Allotment Number (PRAN) will be assigned once your application has been successfully filed.
• The photograph that appears in the 'Photograph and Signature' tab will be the same as the one that appears in the 'Photograph and Signature' tab.
• Select 'e-signature' from the drop-down menu. An OTP will be produced and delivered to your mobile number once more.
• To authenticate your signature and make a payment, enter the OTP.

To open an NPS account offline, go to one of the PFRDA-registered Points of Presence (POPs) and pick up a registration form. POPs are banks and financial organizations that have been designated by the PFRDA to provide services to NPS clients.

These POPs handle NPS Scheme subscriptions, fund manager changes, and other NPS-related services. You must fill out basic facts in the application form and supply relevant Know Your Customer (KYC) documents, such as an Aadhar Card, a PAN Card, and proof of address.

Current Returns of NPS and Tax Benefits Offered

The returns in NPS are linked to the market. Therefore, NPS does not have interest rates. NPS is subject to stringent regulation by the PFRDA. 

NPS returns are tax-free as long as the money is not withdrawn.

Any NPS subscriber can claim tax benefit u/s 80 CCD (1) with in the overall ceiling of Rs. 1.5 lac u/s 80 CCE. An additional deduction for investment up to Rs. 50,000 in trier-1 NPS account NPS is available under subsection 80CCD (1B). This will be over and above the deduction of Rs. 1.5 lakh available u/s 80C of Income Tax Act, 1961.