Government-controlled National Pension System (NPS) has gained much popularity since it was launched in 2004. This scheme focuses on retirement planning for individuals who wish to have a regular flow of income after they cross the age of retirement.
This article focuses on the basics of the scheme and the kind of NPS returns you can expect from it. Keep reading to know all about NPS and its benefits.
What is the National Pension Scheme?
If you want stable income post-retirement, NPS is a great investment opportunity for you. It is a long-term investment and retirement planning scheme. Here are two key points about NPS:
- It is controlled by the PFRDA (Pension Fund Regulatory and Development Authority), which is under the direct control of the Central Government.
- You can access it through a PRAN (Permanent Retirement Account Number) which is issued in your name when you apply for this scheme.
The scheme has three models – an all citizen model, a corporate model, and a government model – for individuals depending on where they are working. For instance, the corporate model is for corporate employees, whereas the all citizen model is for self-employed professionals.
There are two types of NPS accounts:
- Tier-I: It is the basic NPS account. Any new subscriber to NPS has to open a Tier-I account.
- Tier-II: If you want to save voluntarily, then you can open a Tier-II account. It has more flexible withdrawal norms compared to Tier-I.
The amount and frequency of contributions in a year are up to you. You do, however, need to make the minimum contribution yearly which is Rs. 1,000 for the Tier-1 account and Rs. 250 for the Tier-II account.
Invest based on your choice to raise your NPS fund performance
You have two choices to invest in an NPS account. Let’s take a closer look at them:
- Active choice: As the name suggests, you get to choose the fund allocation percentage between the following:
- Equity (E)
- Corporate Debt (C)
- Government Securities (G)
- Alternative Investment Funds (AIF)
- Auto choice: If you choose the auto choice option, also known as the Lifestyle Fund (LC), the funds are allocated as per the system calculation that depends on your age. Here are the classifications:
- Aggressive (LC-75) – 75% Equity
- Moderate (LC-50) – 50% Equity
- Conservative (LC-25) – 25% Equity
With active choice, you can choose the level of risk you want to take. This can help you raise your NPS fund performance as per your expectations.
How much National Pension Scheme returns can you expect?
Your NPS returns also depend on your investment horizon. The age range for investing in NPS is 18 – 70 years. Any person within this age group can invest in this scheme. The NPS account can be held up to the age of 75. The investment options are the same for all the investors, irrespective of their age. Although the withdrawal norms for investors beyond 60 years are different.
|Particulars||Investing before 60 years||Investing after 60 years|
|Exit||After 60 years||After completion of 3 years|
|Exit Type||Normal Exit|
|Allocation||● 60% Lump sum withdrawal
● 40% Annuity purchase if the corpus is more than Rs 5 lakh
NPS interest rate 2021
- There is no such thing as the National Pension Scheme interest rate.
- The returns under this system are variable and depend upon the market forces.
- The average NPS interest rate return has typically been between 9-11%.
- This NPS return rate has been consistent because of expert fund managers handling investment portfolios.
- The returns on this investment are partially fixed due to investments in fixed-income securities. The returns and risk involved depends upon the allocation of your funds.
- You can enjoy an additional NPS benefit in the form of tax benefits.
|Section 80CCD(1)||10% of Basic + D.A. or
10% of Gross income
|20% of Gross total income up to Rs. 1.50 Lakhs|
|Section 80CCD(1B)||Additional Rs. 50,000 deductions|
|Section 80CCD(2)||Employer’s contribution||NIL|
NPS can be one of the best investments for planning your retirement. Your money is secured due to government control, and you can generate a steady flow of income along with steady NPS returns.