You must be doing financially well today, but what happens when you retire? Looking into the future, everyone aspires to a comfortable, self-dependent post-retirement life. One of the best ways to achieve financial freedom after retirement is by investing in a dependable pension plan. It offers peace of mind and certainty by providing a consistent supply of funds to cover various expenses during the golden years.
However, choosing the right pension plan requires careful consideration and planning. The NPS or National Pension System is a reliable option that helps build a robust corpus to enjoy a stress-free retirement journey. You can track your NPS statement regularly to monitor your savings and plan the investment accordingly. Read on to look into the NPS advantages.
Simplicity: An NPS account provides a unique PRAN (Permanent Retirement Account Number) that remains with you throughout your lifetime. There are two types of NPS accounts to choose from:
- Tier-I Account: It is a non-withdrawable retirement account where you can make regular contributions. The plan invests funds according to their fund manager or portfolio’s choice.
- Tier-II Account: It is a voluntary withdrawable account you can choose only if you have an active Tier I NPS account. You can withdraw funds from this account according to your needs as and when required.
Low-Cost Investments: While the minimum contribution amount to open NPS account online is Rs. 500, you can keep the NPS account active by investing only Rs. 1,000 in a financial year. However, the more you invest, the bigger your retirement corpus. So, evaluate your retirement needs carefully and invest accordingly.
Flexibility: The NPS plan is highly flexible in terms of investment amount, which means you can invest at regular intervals according to your financial capacity. Moreover, you get the flexibility to change your investment options among equity, bonds, and government securities or switch your fund managers. The plan also allows the flexibility of choosing between Auto and Active mode for investing.
Portability: If you are an individual subscriber, the NPS account remains portable even if you change your location or job. You don’t need to leave your corpus behind, which is an issue with most other pension plans in India.
Diversification: NPS divides the investments across various instruments, including equity and debt, allowing you to earn market-linked returns while ensuring stability and diversifying your portfolio.
Regulatory Compliance: The Pension Fund Regulatory and Development Authority or PFRDA regulates the NPS with regular monitoring, performance overview, and transparent investment norms. To ensure compliance, fund managers must abide by the NPS Trust regulations when managing NPS statement accounts. That means your funds are kept safe according to government regulations.
Easy Access: Whether you want to open or contribute to an NPS account, you can do that online from the comfort of your home. Once you open NPS account online, you can also check the NAV, request an NPS statement, and monitor fund performance anytime using the online platform.
Power of Compounding Interest: The power of compounding interest lets you reap the benefits of NPS through wealth accumulation. Moreover, the account maintenance charges are low, eventually maximising the accumulated pension benefits.
Tax Benefits: NPS investors can claim tax benefits of up to Rs. 2 Lakh under Sections 80CCD(1), 80CCD(1B) and 80CCD(2). Let’s understand these tax benefits:
- If you invest 10% of your salary in an NPS account without exhausting your 80C limit, this amount is eligible for a tax deduction of up to Rs. 1.5 Lakh under section 80CCD (1) of the Income Tax Act 1961. Additionally, you can claim a benefit of up to Rs. 50,000 under section 80CCD (1B).
- If you have exhausted your 80C limit, you can invest up to Rs. 50,000 in the NPS account and claim a tax deduction under 80CCD (1B) of the Income Tax Act 1961. These tax benefits are over and above the claimed deductions for investments up to Rs. 1.5 Lakh under section 80C.
- Corporate NPS offers an additional tax benefit for salaried individuals. This scheme provides additional benefits to salaried employees on investments routed through the employer. Investment of up to 10% of the salary is deductible from the taxable income under section 80CCD (2) of the Income Tax Act 1961 to the extent of Rs 7.5 Lakh.
- Upon retirement, you can withdraw a tax-free lump sum of up to 60% of the total NPS statement balance.
Investing in the NPS scheme can help you secure your retirement by building enough corpus for a comfortable retirement. The process to open NPS account online is easy. All in all, investing in NPS is a proactive step towards achieving financial stability for your golden years.
Also Read: Working Towards Your Financial Future with the Right Planner
