The National Pension Scheme (NPS) is a scheme floated by the Government of India for offering retirement pension to all those who do not have such pension benefits after retirement from service. The scheme is available for subscription for those between the age group of 18 to 55 years and offers tax rebate of up to Rs 2 lakh
The NPS corpus of funds is invested by the fund managers in three asset classes, namely,
1) E – Investments in equities. The maximum limit is 50%.
2) C – Debt funds that invest in bonds issued by the companies
3) G – Gilt funds investing in government securities
The subscriber who joins NPS gets two options for fund allocation, namely, Auto Choice and Active Choice.
Auto Choice: This is a default option for life cycle funds where the allocation is done automatically based on the age of the investor
Active Choice: If an investor chooses this option, he is free to decide the percentage of allocation in the available asset classes.
The NPS offers three account options, Tier-1, Tier-2 and Swavalamban account. While the Tier-I account is for Central government employees, the Swalamban account for the economically weaker sections.
The Tier-2 account is a voluntary savings account where the minimum amount required to open the account is Rs 1,000. The subscriber can withdraw money at any time, provided that he/she maintains a minimum balance of Rs 2,000 at the end of the year.
The pension amount in NPS is decided by the fund manager’s performance, hence there is no specific rate of return on investment. However, depending on the investment option chosen by the subscriber, the returns can vary between 12-14 percent.