NPS / Pension Plans – Definition, Benefits, Contribution, Process & more

Retirement is often considered a new phase of life. A time, when you are free from all your responsibilities; at least up to an extent. However, the catch here is to plan is advance, if you really want to be free, especially from the financial ones. Here is a famous fashion followed for the planning process, the NPS or National Pension System.

Investing is all kind of retirement oriented plans does the job, and NPS is one of them. This is an offering by the government, oriented to be a tax saving investment option. You must have already heard about it, yes, it is wanted and this article serves as the updates guide, on pension plans.

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What is NPS or Pension Plan?

NPS emerged out of the Indian government’s retirement related investment plans. NPS Full Form, or in other words, NPS meaning is “National Pension Scheme”. This scheme is you go to investment option, wherein you can invest on a daily basis, while working.

When the retirement time arrives, you get a medium of constant investment, when the plan actually starts paying out. This shall present as the means to fulfill all your expenses at a time, when you are no longer working, and have no major source of income.

The payouts are classified into two different segments. This means, you can partly get a lump sum in one half of the payment, and also receive annuity payments, for the second half pay outs.

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    NPS Contribution & its Strategy

    For starters, for either medium of NPS Contribution investment you need to select several options, i.e. the fund options, the pension fund (PF) manager, the investment strategy and even the annuity provider. Failing to choose any of such options would lead to the default selection in National Pension Scheme.

    Pension fund manager

    Here choosing the entity which would manage your funds is chosen. You may choose from one of the following PF managers – LIC Pension Fund, SBI Pension Funds, UTI Retirement Solutions, HDFC Pension Management, ICICI Prudential Pension Fund Management, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund, and Birla Sun Life Pension Management.

    Investment option

    You may choose to invest in Active Choice or the Auto choice. For the active choice, the availed chose the funds as per personal preference, and the Auto choice, also known as Lifestyle Fund, is an aged based automatic allocation of funds.

    Annuity provider

    When investment matures, one will have to purchase a medium of annuity, an insurance company as such. 60 percent can be immediately withdrawn whereas the rest of the amount needs to be purchased.

    Life Insurance Corporation of India, SBI Life Insurance, ICICI Prudential Life Insurance, HDFC Standard Life Insurance and Star Union Dai-ichi Life Insurance are the present service providers.

    Annuity scheme

    The scheme of annuity now needs to be selected. You may choose from

    • Annuity for Life
    • Annuity for Life with return of purchase price on death
    • *Annuity payable for life with 100% annuity payable to spouse on death of annuitant
    • Annuity payable for life with 100% annuity payable to spouse on death of annuitant with return on purchase of annuity

    List of all NPS Schemes in India

    HDFC Pension PlansICICI Pension PlansKotak Pension Plans
    SBI Pension PlansBirla Sun Life Pension PlansReliance Pension Plans
    Aviva Pension PlansBajaj Allianz Pension PlansTata AIA Pension Plans
    Pramerica Pension PlansExide Life Pension PlansAegon Life Pension Plans
    PNB Metlife Pension PlansIDBI Pension PlansFuture Generali Pension Plans
    Indiafirst Life Pension PlansStar Union Pension PlansCanara HSBC Pension Plans
    Sahara Life Pension PlansShriram Life Pension PlansMax Life Pension Plans

    Types of NPS Investment

    The plan allows the holders to avail for 2 National Pension System accounts. One of them is a mandatory NPS account, while the other one can be selected as per personal interest.

    The choice to invest in only one mandatory account or for avail for both the co joined accounts relies upon the holder.

    Mandatory Account – Tier I

    Availing for this scheme, the Tier I account is mandatorily provided. Investment for this account starts with INR 500, and a mandatory deposit of INR 1000 in a financial year. No withdrawals from the account are allowed, till age of retirement, i.e. 60, but exemptions do exist, and they are as follows.

    1. Unemployment for 60 days or more
    2. Paying for marriage expenses
    3. Medical emergencies
    4. Buying a house, and others

    Optional Account – Tier II

    This account being a chosen account, you get flexibility up to an extent. You can ease of withdrawals at times of need and interest. The criterion of this account is that, it can be availed for only after having the tier I account.

    Amount of INR 250 is compulsory to start with the investment, and at times of default you will lose access to the account.

    Penalty of getting the account back is INR 100 and a thorough follow up procedure. Also, one account for one individual is applicable, as one individual cannot have multiple accounts.

    Benefits of NPS Contribution

    We want benefits which outnumber other investment schemes, in order to select the one most offering scheme. Here are the NPS Tax Benefits, which are likely to influence you into investing in NPS Contribution.

    • They are basically focused into giving you tax savings. You may choose to pay 10% of your salary to the scheme and receive tax reduction, under section 80CCD (1). The maximum possible claim is INR 1.5 lakhs, and investment of additional INR 50,000 is possible under the same section (1B). Over and above section 80C and Section 89 CCD limit of INR 1.5 lakhs, being a salaried employee, you may also receive additional section 80 CCD (2), if your employer is also a contributor, up to 10% of salary. This advantage, brings the tax obligation criteria supposed to be met by individuals, down.
    • The time of maturity provides 60% of lump sum withdrawal, and is absolutely tax free.
    • Annuity payments are part of the scheme, which ensures you a fixed payment after retirement when the other sources comes to a stop.
    • Minimum contribution being all time low, investors with a low margin may as well invest.
    • Returns provided are generally inflation adjusted, hence, fulfilling the future obligations of money requirements.

    How NPS is calculated?

    You may refer to the NPS Calculator, in order to determine How NPS is calculated?. The information you will need to enter into the calculator is:

    • Current age ad expected retirement age
    • Per month investment amount
    • Expected returns from NPS Investment
    • Annuity period
    • Percentage of pension wealth invested in the plan
    • Expected rate of return in annuity investment.

    How to Invest in NPS? – NPS Online Investment & NPS Offline Investment

    Your option to invest in the scheme is both possible through online medium and also offline medium. We put them both up here, for your feasibility.

    NPS Investment Online

    eNPS is easier and less time consuming, and hence you may choose to avail for it through the NPS NSDL website, online. Follow these steps precisely

    1. Visit the official website:, following which you need to NPS Login into the page.
    2. Simply visit the site, log in, and then visit the option of “National Pension Scheme” in the home page.
    3. You now need to register and perform all the identification process.
    4. The process will require you to provide details such as type of investor, citizenship, bank account from which the payments will be made and lastly, PAN card number.
    5. Following which, you need to enter in your family details, like name, age, address and more, as asked.
    6. When you are done entering the information, an acknowledgement number will be provided to you.
    7. This number then needs to be used in order to generate Permanent Retirement Account Number (PRAN).
    8. Then proceed and sign the form electronically, to wind up the procedure.
    9. This was the end of registration, which would be the start of your payment procedure. The amount depends upon you to decide.

    Offline medium

    You need to locate the nearest POP or point of presence, the financial institution registered to provide the service. Banks and non banking institutions often register for it, and so, you need to locate the same and consult them with your investment.

    This way you will have access to the scheme. For easy locating of nearest branch, visit the official website of Pension Fund Regulatory and Development Authority (PFRDA).

    Documents required for NPS Investment

    Registration procedure for NPS Investment indulges showing up a bunch of documents, for both the online as well as offline procedures, at time of NPS Form filling.

    1. Fully filled up registration form
    2. Identity proof
    3. Age proof
    4. Address proof
    5. Pan
    6. Aadhaar
    7. Passport size photographs.

    Eligibility Criteria for NPS Contribution

    In order to successfully avail for the NPS Contribution scheme, you need to be eligible as per the norms set up by the Indian government. The norms are as follows:

    1. The individual in concern shall be an Indian citizen
    2. NRIs may as well invest, but change of citizenship amid the investment period, will lead to closure of the account.
    3. The age criterion for investment is in between 18 to 60 years.

    NPS or Pension Plan – Conclusion

    While you dig in all the investment schemes related to retirement, this shall be your consideration. Being an offering from the government and also aimed towards tax reduction, it shall be a great investment option.

    We made the article aiming to provide the necessary insights on NPS, and choose to spread the knowledge. The efforts of your investment ideas, shall find means in this article, and we are open to the idea of making people aware of the existing benefiting schemes.

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