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National Pension System (NPS)

The National Pension System (NPS) is a voluntary, long-term retirement savings scheme in India. It was introduced by the Government of India in 2004 with the objective of providing financial security and income to individuals during their retirement years. NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which oversees its functioning and development. Here are key features and aspects of the National Pension System:

  1.  Eligibility: NPS is open to Indian citizens, both resident and non-resident, as well as Persons of Indian Origin (PIOs). It is available to both salaried and self-employed individuals. Even employees of the central and state governments can participate in the NPS.
  2. Contributions: Both the subscriber (individual saving for retirement) and the employer (for government employees) contribute to the Tier-I account. The minimum contribution for Tier-I is set by the PFRDA. Subscribers can choose their own contributions, but they must meet the minimum requirements. For Tier-II, there is no minimum contribution requirement.
  3. Investment Choices: NPS allows subscribers to choose from different fund managers and asset classes, including Equity (E), Corporate Bonds (C), and Government Securities (G). This flexibility allows subscribers to tailor their investments according to their risk tolerance and investment objectives.
  4.  Withdrawal Options: Upon reaching the age of 60, subscribers can withdraw a portion of their NPS corpus as a lump sum, and the remaining amount must be used to purchase an annuity, which provides regular pension payments. Partial withdrawals are also allowed under specific circumstances like critical illness, higher education, or the purchase of a home.
  5.  Exit and Maturity: Subscribers can continue their NPS account until the age of 70. At that point, they are required to use at least 40% of the corpus to purchase an annuity, which provides a regular income stream. The remaining 60% can be withdrawn as a lump sum or in a phased manner over the next ten years.

NPS is a valuable retirement savings tool that combines tax benefits, investment flexibility, and a transparent regulatory framework. It has gained popularity among individuals looking to plan for their retirement and secure their financial future.