Investing in the National Pension System (NPS) in India involves a systematic and regulated process. Here’s how you can invest in NPS:
NPS is open to all citizens of India, including NRIs, between the ages of 18 and 65 years. You can open an NPS account through Points of Presence (POPs) or online through the NPS website.
2. Choose a Suitable POP:
Choose a Point of Presence (POPs) from the list available on the official NPS website. Banks, financial institutions, and other entities registered with the PFRDA (Pension Fund Regulatory and Development Authority) act as POPs.
3. Complete KYC Requirements:
Fill out the necessary Know Your Customer (KYC) forms and provide the required documents (identity proof, address proof, and photograph) to your chosen POP. This step is essential for the verification process.
4. PRAN Generation:
After completing the KYC process, a Permanent Retirement Account Number (PRAN) will be generated for your NPS account. PRAN is a unique 12-digit number that serves as your NPS account identifier.
5. Choose Pension Fund Managers:
NPS offers multiple Pension Fund Managers (PFMs). You can choose one or more fund managers and select your investment options. NPS provides different fund options: Equity (E), Corporate Bonds (C), Government Securities (G), and Alternative Investment Funds (A).
Decide your contribution amount. There is no maximum limit for contributions, but there is a minimum contribution requirement per financial year. You can contribute either through a lump sum or through regular contributions (monthly, quarterly, etc.).
7. Tier I and Tier II Accounts:
NPS has two tiers: Tier I and Tier II. Tier I is mandatory, long-term, and comes with certain restrictions on withdrawals. Tier II is a voluntary, short-term account with no withdrawal restrictions.
8. Tax Benefits:
Contributions made to NPS are eligible for tax benefits under Section 80CCD(1), 80CCD(2), and 80CCD(1B) of the Income Tax Act. The maximum deduction allowed under these sections is subject to overall limits specified by the Income Tax Department.
9. Track Your Investments:
You will receive a statement of your NPS account regularly. You can also track your investments online through the NPS website using your PRAN and password.
10. Withdrawals and Annuity:
At the age of 60, you can withdraw a portion of the corpus as a lump sum, and the remaining must be used to purchase an annuity. You can defer the withdrawal until the age of 70.
11. Exit and Withdrawal:
In case of premature exit (before the age of 60), a portion of the corpus can be withdrawn, but the remaining amount must be used to purchase an annuity.
It’s crucial to carefully consider your risk tolerance, financial goals, and the investment options available before making decisions in NPS. If you are unsure about the investment choices, consider consulting a financial advisor for personalized guidance.