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NPS Features & Benefits you need to know

Retirement is the phase when you do not have any active income; you do not work anymore to earn.

What this means is that you need to have saved and invested enough money to last you through your life from the day you stop working.

NPS is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life.

Didn’t understand? Let’s make it simple for you. Read on.

What’s NPS?

The NPS or National Pension System is a voluntary retirement scheme through which you can create a retirement corpus or your old-age pension.

It’s managed by PFRDA (Pension Fund Regulatory and Development Authority) and available to all Indian citizens (resident or non-resident) between 18 and 65 years old.

One can join the NPS as late as when they are 60 years old and continue to contribute until they are 70 years old.

Features & benefits of investing in NPS?

-       It allows you the flexibility to choose your own investment option based on your risk appetite

-       It offers diversification by giving you option to invest  in equities, corporate bonds and government securities either through active option or auto option

-       You can also select pension fund manager as per your choice.

-       It helps you earn market based returns over long term.

-       It is one of the most cost-effective investment option available

-       You can also avail tax benefits on your NPS investment.

 

Benefits of investing in NPS through www.icicidirect.com:

-       Subscribe and invest online in NPS through ICICIdirect.com

-       Ease to invest in NPS as per your convenience

-       Option to invest in NPS either through Systematic Investment Plan (SIP) or Lump sum amount

-       View contribution book, statement of transaction, NAV of pension fund on ICICIdirect.com

-       Dedicated email id  : npshelpdesk@icicisecurities.com to address customer’s NPS queries

Different types of NPS account?

   There are 2 types of NPS account: Tier 1 and Tier 2.

   Tier 1-       It is a mandatory account for those subscribing for NPS.

-       You can avail tax benefits on investment in NPS Tier 1 account

-       It is non-withdrawable retirement account. Withdrawal is allowed upon meeting the withdrawal conditions prescribed under NPS as per regulation. Partial withdrawal is allowed up to 25% of his own contribution (excluding employer contribution) for Marriage or Higher education of children or purchase of house/flat or for prescribed illness (subject to certain conditions) if subscriber has been in NPS for at least 3 years).

     Tier 2

-       It is voluntary saving facility as an add-on to any NPS Tier 1 account holder.

-       You can withdraw from NPS Tier 2 account whenever you wish

 

Particulars

 NPS Tier 1

 NPS Tier 2

Minimum Contribution at the time of account opening

Rs. 500

Rs. 1000

Minimum amount per contribution

Rs. 500

Rs. 250

Minimum amount to be invested every financial year

(Note: applicable from second Financial year from the date of PRAN allotment date)

Rs. 1000

NA

Minimum no. of contribution

(Note: applicable from second Financial year from the date of PRAN allotment date)

1 per FY

NA

 

Investment choices offered in NPS?

 

You have choice to invest in various asset classes like equity, corporate bonds, and government securities either through Active choice or Auto choice.

-       Active Choice - Individual  Funds (Asset class E, Asset class C, Asset class G & Asset class A)

-       Auto Choice – Life Cycle  fund (Aggressive, Moderate (Default) & Conservative)

In Active choice, you have the option to actively decide as to  how  your  NPS contribution is to be invested in the  following asset classes:

Sr. No

Asset Class

Particulars

1.

Asset Class E  (Maximum allocation up to 75% of investment)

Investments in predominantly equity market instruments

2.

Asset Class C  (Maximum allocation up to 100% of investment)

Investments   in   fixed    income    instruments   other   than Government securities

3.

Asset Class G (Maximum allocation up to 100% of investment)

Investments in Government securities

4.

Asset Class A (Maximum allocation up to 5% of investment). Note: Investment in Asset Class A is available only for NPS Tier 1 account.

Investment in Commercial or Residential  mortgage based securities, Units issued by Real Estate and/or Infrastructure Investment Trusts and/or  Asset backed securities as regulated by SEBI,  Alternative investment funds (AIF category I & II) registered with SEBI

 

Please note:

1. Upto 50 years of age, the maximum permitted Equity Investment is 75% of the total asset allocation.

2. From 51 years and above, maximum permitted Equity Investment will be as per the equity allocation matrix provided above. The tapering off of equity allocation will be carried out as per the matrix on date of birth.

3. The overall asset class allocation under the 'Active Choice' option should be equal to 100%.

 

In Auto choice, you have choice to select any 1 of the below mentioned option for your   NPS investment.

Sr. No

Life Cycle

Particulars

A.

Aggressive Life Cycle fund (LC-75)

Maximum investment in equity is restricted to 75%

B.

Moderate Life Cycle fund (LC-50)-Default

Maximum investment in equity is restricted to 50%

C.

Conservative Life Cycle fund (LC-25)

Maximum investment in equity is restricted to 25%

 

Tax Benefits of NPS

 

The NPS has its share of income tax benefits both at the time of making contributions and at the time of withdrawal on maturity. Individual taxpayers can claim deduction on contributions under Tier I NPS up to Rs 1.5 lakh in a financial year under Section 80C. Further, NPS subscribers can claim an additional deduction for investment up to Rs 50,000 in Tier I account in a financial year under Section 80CCD (1B) over and above the Rs 1.5 lakh deduction under Section 80C. However, contributions to Tier II do not provide any tax benefits.

 

NPS Withdrawal on Maturity

When you reach the maturity age, which is 60 years, you can withdraw the entire corpus from Tier I, of which only 60% is exempt from tax as with the remaining 40%, one has to purchase an annuity mandatorily.

 

Bottom line

One should not just aim for the tax benefits. Therefore, investing in the NPS should be a method to fulfill the retirement needs.

 

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. PFRDA registration numbers:  POP no -05092018. National Pension Scheme is not exchange traded product / service and ICICI Securities Ltd. is just acting as a corporate agent and all disputes with respect to the corporate agency activity would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

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