As the contributions made to NPS invested in company stocks, government bonds and money market instruments, the value of retirement corpus would depend on the returns that the investments generate over the investment period.
Originally launched to replace the conventional pension system for government employees, who joined on or after January 1, 2004, the National Pension System or NPS (earlier New Pension Scheme) was made available for the common public between 18 and 60 years of age from May 2009.
While the government employees under the contributory pension scheme compulsorily contribute 10 per cent of their basic salary to the NPS fund and get the tax benefits u/s 80C, normal public may invest in NPS Tier-I Account before March 31 and avail tax deductions up to Rs 50,000 u/s 80CCD.
NPS Tier-I account is for retirement purpose and matures when the contributor retires at the age of 60. At least 40 per cent of the retirement corpus has to be invested in a pension plan of any IRDAI governed insurance company, while the remaining 60 per cent may be commuted at the time of retirement or after attaining the age of 60 years. The entire commutation part, that is 60 per cent of the retirement corpus, is tax-free.
Along with the Tier-I account, a person may also open the Tier-II account, where there is no restrictions on withdrawals.
Apart from the choice of accounts, investors may also choose an asset class, in which they want to invest. In Asset Class E, investments are made predominantly in equity market instrument; in Asset Class C, investments are made predominantly in fixed income instruments other than Government Securities, and in Asset Class G, investments are made predominantly in Government Securities.
As the contributions made to NPS invested in company stocks, government bonds and money market instruments by Pension Fund Managers (PFMs), the value of retirement corpus would depend on the returns that the investments generate over the investment period.
While PFMs manage the funds, NPS accounts are opened by other identities, know as Point of Sale (POS). To make contributions and to make partial withdrawals etc, an investor has to approach the POS.
NPS account may be opened offline or online. To open account offline, a person has to fill forms and submit to a POS along with copies of necessary documents and account opening fee. Following verification of the documents, a Permanent Retirement Account Number (PRAN) will be issued. Once the PRAN is generated, the person may start contributing.
Some, POS also offer online services, through which NPS accounts may be opened quickly and conveniently. If you have demat account, and the demat account provider is a POS, you will get a link to open NPS account. Most banks also provide the facility to their net banking account holders.
You may also open an eNPS accont by visiting enps.nsdl.com/eNPS/NationalPensionSystem.html that will lead you to the page of NPS Trust in NSDL site.
On visiting the page by clicking the NPS link, you will get option to fill your details, choose types of account (s), Asset Class, as well as PFM and upload scanned documents. If you have Aadhaar number and want to use the Aadhaar verification facility, if provided, you may complete the authentication process online after paying the account opening fee.
Through online process, your PRAN will be generated quickly and you may start contributing within 1-2 days and avail the tax benefits under section 80CCD.