The National Pension Scheme is a scheme that is retirement oriented and has been introduced by the government of India. Initially, the NPS was meant for government employees; however, later on, it was made available for the public domain as well. The NPS is opulent amongst the investors who are looking forward to creating long-term corpus with regular investments. When investing in the NPS, two types of investment accounts choice is given that is Tier-I and Tier-II accounts.
Anyone who needs to subscribe to the NPS should open this account compulsorily. However, the NPS Tier-II account is optional. NPS Tier-I account is the primary account and the NPS Tier-II account can only be opened after the Tier-I account has been opened.
The subscribers to the NPS Tier-II account have the liberty to choose any fund managers listed within the NPS. Listed below are the eight funds managers in the National Pension Scheme:
The UTI Retirement Solutions Limited, LIC Pension Fund and SBI Pension Fund are the only fund managers who manage the pension contribution of the government employees within NPS.
The Tier-II NPS is a voluntarily account that can only be opened when one already has a Tier-I account opened. The NPS Tier-II account permits flexibility of investment and withdraws into the scheme. Anyone can withdraw from the NPS Tier-II investment whenever required with no limits. Besides, no exit load is charged when the funds from the NPS Tier-II account are withdrawn. There are no minimum yearly contribution or balance requirements for the NPS Tier-II account.
To open the NPS Tier-II account, the following is the eligibility criteria:
There is no minimum or maximum annual investment cap for the same. The minimum initial contribution is Rs 1000 and the subsequent contribution can be a minimum of Rs 250. However, for the government employees, the lock-in period is 3-years and no lock-in period for the private sector employees. The returns are on the premise of the asset allocation as well as the pension funds as chosen by an individual.
The following are the key benefits of opening the NPS Tier-II account:
Anyone can open the NPS Tier-II account both online and offline. Below discussed are the steps to open the account in both ways:
The following are steps to open the NPS Tier-II account online:
Individuals can open an NPS Tier-II account when they have a Tier-I account. The following are the steps to open the Tier-II account offline:
The only criteria that are important for opening the NPS Tier-II account is an existing Tier-I account. The following are the KYC documents that are submitted already listed below:
The PRAN card is a valid document that is required for opening the NPS Tier-II account.
When investing in the NPS Tier-II account, the following two choices of the investment strategy are given:
Each year, as the individual gets older, the investments are then reallocated so that the equity exposure is reduced and the debt exposure is increased. This permits to protect of the returns from the market volatilities. The following are the four funds available for investment:
The investments into the Tier-II NPS account are likely to be continued until an individual reaches 60 years when the scheme matures. One can defer the maturity by another ten years but on such deferment, further investments are not required.
To redeem the funds from the NPS Tier-II account, the following process should be followed:
The individual needs to submit a request for the closure of the NPS Tier-II account by simply logging into the NPS account online. Moreover, one can also submit a closure form of the account to the nearby NPS Point-of-Presence.
The National Pension Scheme Tier-II is entitled to tax deduction within Section 80C for the government employees. There is no tax deduction when it comes to private-sector employees. Moreover, the gains in Tier-II remain taxable at the slab rate.