NPS on Paytm Money: Here is what you need to know before you invest

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Published: June 13, 2019 11:59:46 AM

Paytm Money, an online platform for mutual fund investments has received the approval from the Pension Fund Regulatory and Development Authority (PFRDA) to offer the National Pension System (NPS).

NPS, Paytm Money, NPS Tier 1, NPS Tier 2 account, PFRDA, NPS POP, National Pension SystemTo invest in NPS through Paytm Money, one needs to register and start contributing to both Tier 1 and Tier 2 accounts in any of the eight pension fund managers.

If you are one of those who use Paytm for paying bills and shopping amongst other financial transactions, there’s one more reason to keep using the app. Paytm Money, an online platform for mutual fund investments owned by Paytm has received the approval from the Pension Fund Regulatory and Development Authority (PFRDA) to offer National Pension System (NPS). Paytm Money will now act as a Point of Presence (PoP) for the NPS along with other POPs such as SBI, ICICI Bank, HDFC Bank etc to act as customer interface. Offline POPs may perform their customer-related activities through their network of branches called POP Service Providers (POP-SP). To invest in NPS through Paytm Money, one needs to register and start contributing to both  Tier 1 and Tier 2 accounts in any of the eight pension fund managers.

Two major attractions of NPS are – One, its low cost and secondly the additional deduction of up to Rs. 50,000 under Section 80 CCD(1B) over and above the ceiling of Rs. 1.5 lakh under Section 80C that it offers.

However, before investing in NPS, one needs to consider 5 important points :

1. Compulsory pension in NPS

NPS is a long term retirement product with provision for a compulsory pension during the retirement years. One is not allowed to withdraw the entire corpus on the maturity of NPS. At age 60, one is allowed to withdraw only 60 per cent of the corpus, while on the balance 40 per cent, a compulsory pension is to be received. There are various pension options of which one is to keep receiving a pension for lifetime from a life insurance company.

2. Choice of fund options in NPS

The four fund options available in NPS are  – Asset Class E, Asset Class C, Asset Class G, and Asset Class A.  Of all the fund options, Asset Class E investments are predominantly in equity market instruments with up to a maximum of 75 per cent in equities.

3. Choice of managing funds

One may choose between Active Choice and Auto Choice. As the name suggests, under the Auto Choice also known as Life Cycle Fund (LC Fund), the allocation automatically changes based on age. As a subscriber one has to choose any of the three LC Fund options – LC 25, LC 50 and LC 75. If one wishes to allocate funds based on personal preferences, contribution may be allocated in one or more of the E,C,G,A funds subject to their maximum caps. The maximum in the equities can be 75 per cent up to age 50 beyond which the allocation tapers off.

4. Tax benefits in NPS

NPS offers tax benefits under three different sections of the Income Tax Act – Section 80CCD (1), Section 80CCD (1b) and Section 80CCD (2). However, do not open NPS account with the sole objective of saving tax rather understand its working and then invest only for your retirement needs. Further, the amount allowed to be withdrawn on maturity is tax exempt but the annuity or the pension received during retired years will be subject to tax as it gets added to your annual income.

5. Minimum contribution in NPS

In order to keep the NPS account active, one has to keep contributing a minimum amount of Rs.1000 ( earlier it was Rs 6,000) in each financial year till age 60. Do not aim to contribute either a minimum amount or an amount required to save tax. Instead, find out if NPS suits you and then contribute a sizeable amount to accumulate a decent corpus of retirement.

There are other investment options such as equity mutual funds that can be used to accumulate funds for retirement as well. Estimate your post-retirement inflation adjusted requirement and then divide the monthly savings into NPS and MFs to reach to your target amount rather than using any of these retirement vehicles.

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