Many retirement saving plans focus on one main option: the National Pension Scheme (NPS). With tax benefits, market-linked returns, and lifelong pension payouts, NPS has become popular among salaried and self-employed individuals. Let’s see how it encourages long-term, disciplined investing for a financially secure future.
What is National Pension Scheme?
The National Pension Scheme (NPS) is a government-backed savings plan to help people save for retirement. It offers a reliable way to build a retirement fund. It was started under the PFRDA Act 2013. The voluntary nature of the NPS makes it easy for investors to invest money wisely.
Who Can Invest in the National Pension Scheme (NPS)?
Before investing, checking whether you meet the eligibility requirements is important. The NPS is designed to be inclusive, with specific age, citizenship, and employment criteria.
| Criteria | Eligibility |
| Age | Anyone between the ages of 18 and 70 can join the NPS. |
| Citizenship | Indian residents, Non-Resident Indians (NRIs), and Overseas Citizens of India (OCI). |
| Employment | It is mandatory for government employees who joined service after 2004, while it remains voluntary for private-sector employees. |
Features of the National Pension Scheme
Understanding the key features of NPS helps you make the most of your retirement planning. One of the standout aspects of NPS is the flexibility it offers through two distinct types of accounts:
| Description | Tier I Account | Tier II Account |
| Purpose | It is the main retirement savings account. | It is voluntary and can be used as a normal savings account. |
| Minimum Contribution | INR 500 per month or – 1000/- per month. | INR 250/- per month. |
| Withdrawals | Limited until the age of 60. | You can withdraw money anytime. |
| Eligibility | Anyone eligible to invest in NPS can open a Tier I account. | Only people with a Tier I account can open a Tier II account. |
How Does the NPS work?
A lot of people promote investments in NPS. But how does it work? The NPS typically invests your money in four different types of assets.
| Asset type | Purpose |
| Equity (E) | Shares of different companies |
| Corporate Bonds (C) | Debt to companies |
| Government Bonds (G) | Issued by the government for low-return but safer options |
| Alternatives (A) | Real estate and other investment options |
You, the investor, can choose how your money is divided into different assets. There are two ways to do this:
| Auto Choice | This is the default option. You get higher equity at a young age, which lowers as you age. |
| Active Choice | In this option, you get to decide on the split. The equity cap is as follows: Government employees: 50%Others: 75% |
Retirement Planning Strategies for Early Starters
Now that you know the importance of early retirement planning, let’s also look at some of the most effective strategies for early starters. These tips will help you plan a financially secure retirement in your 20s:
| Strategies | Description |
| Save Consistently | Start your retirement account early, then be consistent with investing in it. It will help your investment grow a lot over time. |
| See What Employer Offers | Most employers offer EPF, Pension and more. So, take advantage of these workplace retirement plans. With employer contributions, you can increase your savings. |
| Diverse Investments | Be a smart investor and build a diverse portfolio. This helps to avoid risky situations like the fall of the market. |
| Automate Savings | Set up automatic transfers to your savings or retirement planning accounts. So, your money starts growing with time. |
| Regular Review and Adjustments | Don’t make a single plan and forget about it. Make it a habit to regularly review your plans and adjust your retirement savings accordingly based on the situation. |
How to Invest in The National Pension System?
You can start your investment in NPS by enrolling under the scheme. All eligible persons can enrol in this scheme.
Online Method
- Visit the eNPS portal for online enrollment;
- Choose your model;
- Add your Date of Birth, Mobile Number, PAN, and Email ID;
- Complete verification; and
- State investing with the first contribution.
Offline Method
- There are various Points of Presence (PoP) for NPS offline enrollment.
- Visit any authorised PoP office.
- Fill the form offline with accurate details.
- Provide documents for verification; and
- Complete submission.
Benefits of National Pension Scheme
The table below explains the various benefits of investment in NPS.
| Benefit | Description |
| Taxation | NPS offers major tax relief. Under Section 80C and 80CCD(1B), claim deductions up to ₹2 lakh. National Pension Scheme tax benefits are a big draw for most investors. |
| Withdrawals | After being part of NPS for 3 years, you can make partial withdrawals for specific needs like a child’s education or marriage, buying a house, or medical emergencies. |
| Security | NPS not only builds your retirement fund but also gives you peace of mind for unexpected situations in life. |
| Fund Management | Professional fund managers handle your investments, so you don’t have to worry about how your money is growing. |
| Flexibility | NPS gives you control. You can switch investment options, open a Tier II account, and adjust your contributions. |
Know the Limits and Benefits of NPS Before You Invest
NPS returns are not guaranteed. They depend on whether the market’s performance goes up or down. Annuity returns can be on the lower side. In some cases, they might not keep up with rising costs.
You can’t withdraw the full amount before retirement, which may be a drawback if you need money urgently.
Though NPS has some risks, using it smartly with a PPF account can help you build a safe and balanced retirement plan. Investments in NPS are very beneficial, but investors have to be smart.
