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Retirement planning is one of the most important aspects of financial planning. If you are considering planning for your retirement, you might consider (NPS) National Pension Scheme as a part of your portfolio for retirement. NPS is a focused investment for one’s retirement. NPS invests the contributions of the depositors into various market-linked instruments such as equity and debts across market segments. Let us understand what is NPS scheme? its features and step by step guide for opening an NPS account with SBI.
The NPS is a social security scheme launched by the Central Government of India.
The New Pension Scheme is a contribution-based scheme that provides market-linked returns to pensioners. Initially, it was aimed at the Central Government employees only. However, NPS was subsequently extended by the Pension Fund Regulatory and Development Authority (PFRDA) to all citizens.
So, now an employee belonging to the private sector or someone who is self-employed can avail of the new pension scheme. It also offers portability across various locations and jobs. SBI is one of the banks where you can open an NPS account.
There are two type of NPS accounts Tire I and Tire II:
The following are the salient features for both Tier I and Tier II types of NPS accounts:
The most important eligibility criteria for an individual to apply for the SBI National Pension Scheme are:
(i) An individual should be between the age of 18 to 60 years.
(ii) Based on the KYC norms, the following documentation is required:
(iii) In the case of Tier I type of NPS account:
(iv) In the case of Tier II type of NPS account:
(v) For an NPS Tier II account, an individual has to first open an active Tier I account for activating the Tier II account.
(vi) There is a minimum contribution of Rs. 1500 at the time of account opening for a composite account for Tier I and Tier II together.
(vii) It is mandatory to submit a cancelled cheque for a composite application or Tier II application with the application form.
Make sure you have the following documents ready:
Once you keep the documents ready, follow the below mentioned steps to open the account:
NPS schemes invest the corpus in equity as well as debt instruments depending on the age of the investor. Hence NPS also uses compounding interest to calculate the returns.You can also calculate your estimated return on NPS investments using cleartax NPS calculator.
Deduction for NPS is allowed under section 80C limit of Rs.1.5 Lakh. However, an additional deduction of Rs.50,000 for NPS contribution is allowed under section 80CCD (1B). Hence one can claim a total deduction of Rs.2 lakh by investing in NPS.
NPS investments are linked to the market, whereas investments in PPF are fixed return investments fully backed by the government. Also, NPS investment is to be made till the age of retirement i.e 60 years, whereas PPF has a lock-in period of 15 years with partial withdrawals allowed after 5 years. Deduction for both the instruments is allowed under section 80C, however, an additional deduction of Rs.50,000 is allowed for NPS. Hence both the instruments are for different purposes and offer individual benefits, an investor should consider having a mix of portfolio comprising of all kinds of instruments for robust financial planning.
National Pension Scheme-login, scheme and benefits
Income tax deduction for NPS under section 80CCD (1B)
NPS Tier 1 Account – How to Open, Interest Rate, Features, and Withdrawal