Contribute to NPS: All You Need to Know

How Does an NPS Work?

NPS is a pension scheme that allows you to make regular contributions towards your retirement. Professional fund managers manage these investments, ensuring potential growth over time.

At the age of 60, you can withdraw up to 60% of your corpus from the National Pension Scheme, while the remaining 40% must be used to purchase an annuity. This annuity ensures a steady income stream during your retirement. There are two ways to contribute to NPS, each offering distinct benefits. Let's explore the details of the different account options under the National Pension Scheme.

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NPS Calculator

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What are the Account Types Under the NPS?

The NPS offers two types of accounts: Tier I and Tier II. The Tier I account is intended for retirement savings, providing various tax benefits, but withdrawals are restricted until you reach the age of 60. In contrast, the Tier II account has no such limitations, allowing withdrawals at any time.

The Tier I account is mandatory when opening an NPS account, while the Tier II account can only be opened after the Tier I account is active, through a separate application.

Although the Tier I account has restrictions, partial withdrawals are allowed under specific circumstances, such as for medical emergencies, children's education, marriage expenses, or purchasing or constructing a house. This structure accommodates your essential life needs while encouraging long-term saving for your retirement.

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Start Investing ₹6,000/month

Get Pension ₹60,000/month+

Including Life Cover

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+Standard T&A Applied

What are the Advantages of Contributing to the NPS Account?

Listed below are the key advantages of contributing to the NPS account:

1. Flexibility

   NPS offers great flexibility for subscribers. If you're dissatisfied with the performance of your fund, you can change your fund manager. You can easily download the change request form online or pick it up from your nearest Point of Presence (POP). A small transaction fee applies when changing the fund manager. Additionally, NPS allows you to reallocate your investments between different asset classes, such as government securities, corporate bonds, and stocks.

2. Stabilisation of Risk-Returns

   NPS balances risk and returns by capping equity exposure to 75%, which is reduced to 50% for senior citizens and government employees. After the age of 50, your equity allocation will decrease by 2.5% annually. This gradual reduction helps mitigate risk as you approach retirement, offering a more stable investment path in the long term.

3. Returns

   For Tier I accounts, the minimum contribution is ₹500 per deposit, with a requirement of at least ₹1,000 in total annually. There's no limit to the number of contributions you can make throughout the year. For Tier II accounts, the minimum contribution per deposit is ₹250, with no annual minimum requirement. This provides flexibility for those looking to make smaller, more frequent contributions without a set yearly commitment.

How Helpful is an NPS Calculator?

Through the power of compounding, the NPS can provide significant long-term benefits. Using an NPS calculator helps you understand the lump sum amount and pension that you will receive at retirement based on your current contribution. You can visualise your financial readiness for retirement by contributing to your NPS account every month.