NPS Investment - How to Invest in National Pension Scheme (NPS)

How to invest in NPS?

Building a sufficient retirement corpus after you retire is necessary so that you can live a financially free life. To allow you to save for retirement, there are various investment avenues. The National Pension System (NPS) is one such investment avenue that enables you to build up a corpus for retirement.

What is National Pension System (NPS)?

The NPS scheme is an investment scheme wherein you can make annual investments until you reach 60 years of age. The investments done into the scheme are invested in the market, allowing you market-linked returns. When the scheme matures, you can avail a part of the corpus in a lump sum while the remaining part pays you annuities, thereby creating a regular source of income for your retired life.

Who can choose NPS investments?

NPS investments can be made by individuals between 18 years to 60 years of age. The individual can be a resident Indian or a NRI. In the case of NRIs, though if the citizenship of the individual changes during the duration of the scheme, the scheme would be closed.

How to invest in NPS?

You can invest in an NPS scheme either through an authorized bank or non-banking financial company (NBFC). Currently, most banks and certain NBFCs allow their customers to invest in an NPS scheme through them. These authorized banks and NBFCs are called Point of Presence (POP). Each authorized POP has a licensed branch for accepting NPS investments from customers. Such authorized branches are called Point of Presence Service Providers or POP-SPs, and you can approach such branch and open a NPS account for investment.

How to invest in NPS online?

With the online medium becoming popular, investing in NPS schemes are also allowed online. For online investments, you can use the net banking facility offered by your bank account. You can log into your bank account and choose to open a NPS account with your bank. You can deposit money through your savings account into the NPS account and start NPS investments.

Alternatively, you can invest in NPS online through the scheme’s official website. The steps for online investment through the official website is as follows –• Visit the website https://enps.nsdl.com/eNPS/NationalPensionSystem.html and choose ‘National Pension Scheme’• To invest, you would have to register on the website.• To register, fill up the online application form providing all the relevant details like your name, age, citizenship, address, type of investor, bank account from which investments into the scheme would be made and your PAN card number• Once the form is filled up and submitted, an acknowledgement number would be generated.• A Permanent Retirement Account Number (PRAN) would also be generated. This number would be your NPS account number• Once you e-sign the registration form and submit it, your registration would be complete• After successful registration, you can log into your account and start NPS investments. You would have to provide your PRAN number, the type of NPS account in which you want to contribute and the amount of such contribution

A simple process, isn’t it?

NPS investment option

When you invest in a NPS scheme, there are two investment options that you have. One is the Tier I account, and the other is the Tier II account. Let's understand what these options are –• Tier I Account: Tier I account is a compulsory account which you have to open if you invest in the NPS scheme. The account does not allow withdrawals unless you need money for specific reasons like for meeting marriage related expenses, for a medical emergency, for higher education, etc. The minimum investment in NPS Tier I Account is INR 500 to open the account. Moreover, in one financial year, you have to make an investment of at least INR 1000 in Tier I Account to keep the account operative. If the minimum investment in NPS Tier I Account is not made, the account is frozen. In that case, you would have to pay a penalty of INR 100 to unfreeze the account and make it active. Investments in Tier I Account can be done till you reach 60 years of age or till your close the account prematurely.

• Tier II Account: Once you open a Tier I Account, you get an option to open a Tier II Account as well. Tier-II account is optional and can be opened if you want and only if you have a Tier I account in your name. The minimum investment required for Tier II Account is INR 250, and you can withdraw from the scheme as and when you want. This account is not rigid like Tier I Account.

Things to remember about NPS investments

Now that you know how to invest in NPS and the investment options, here are some important points for you to keep in mind –• You can open Tier I and Tier II account only once in your name. Moreover, one NPS account is allowed for one individual• To invest in NPS you would have to submit your identity proof, age proof, address proof, PAN card, Aadhar card, and passport-sized photos with the registration form to complete the registration and open the NPS account• Investments made into the NPS scheme are allowed as a deduction from your taxable income. You can claim a deduction under Section 80 CCD (1) if you are a salaried employee and contribute up to 10% of your salary and dearness allowance to the scheme. If you are a businessman, contribution up to 10% of your income can be contributed to the NPS scheme under this Section. This contribution is allowed as a deduction up to a maximum of INR 1.5 lakhs, and it includes deductions availed under Section 80C• If your employer contributes up to 10% of your salary and dearness allowance towards the NPS scheme, you can claim an additional deduction under Section 80 CCD (2) independent of Section 80C deduction. This deduction can be claimed both in the old and new tax regimes• You can claim an additional deduction of INR 50,000 if you invest in NPS over and above the deduction claimed under Section 80C, 80 CCD (1) and 80 CCD (2). This additional deduction is allowed under Section 80 CCD (1B).

NPS investments are an attractive way to create a retirement corpus and you can even claim tax benefits on the investments done. With the facility of investing online as well as offline, you can choose to invest in the NPS scheme in any way which suits you and create a retirement corpus for yourself. For a better understanding, you can get in touch with our experts at IndiaNivesh for more guidance and assistance for your NPS investments.

Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.