What is NPS and How it Works ?

As COVID-19 hit, a lot of people looked to secure their future, especially during their golden years. One such financial instrument that people looked at was the National Pension Scheme (NPS), which saw a significant rise of 30% in the total number of subscribers compared to the previous year.

If you’re on the lookout to make an informed decision about investments, you may want to consider a National Pension Scheme, popularly known as the NPS. Investing in this financial tool will not only grow your wealth and build on a solid retirement corpus but also helps you save on tax.

  • What is the National Pension Scheme?  

    NPS is an excellent tax-saving retirement fund. The Government of India launched the National Pension Scheme in 2004, and was originally meant for government officials. In 2009, however, NPS was made accessible to all individuals. The government has designed NPS in such a way that account holders can continue earning a stable income even after retirement, along with considerable returns on their investment.

  • How does the NPS scheme work?  

    NPS plays a key role in helping individuals determine where to invest their pension wealth. NPS account holders can make regular contributions to their pension account through the course of their employment period.

    An individual holding an NPS account must contribute a minimum of Rs. 6,000 every year. After staying invested until retirement, they can choose to withdraw a part of the sum, about 60%, and put it to good use. The remaining amount, preferably 40% of the total invested sum, should be used to purchase an annuity and for setting up the means for a regular income post-retirement.

    Under the unfortunate circumstances of the death of the account holder before 60 years, the entire accumulated sum is to be paid to the nominee or the legal heir of the account holder.

    NPS accounts are of two types: Tier I NPS accounts and Tier II NPS accounts. The Tier I NPS account is non-withdrawable till the account holder is of 60 years of age or he/she has retired. On the other hand, a Tier II NPS account functions as a voluntary savings account. Individuals holding Tier II accounts can withdraw their accumulated money whenever they want.

    Note that the sum of money that accumulates in your National Pension Scheme (NPS) account is entirely dependent on two factors. Firstly, the annual contributions you make into your NPS account voluntarily, and secondly, the income generated from investing 40% of the maturity amount in the purchase of annuities. 

  • How to open an NPS account? 

    An NPS Account can be opened with the Point of Presence (POP) entities. Most private and public sector banks along with several financial institutions are enrolled as POPs. Individuals can access POPs through the Pension Fund Regulatory and Development Authority (PFRDA) website. Individuals can also open their NPS account online through the eNPS website.


  • Who can open an NPS account?

    An Indian citizen in the age group between 18 and 60 years of age is eligible for opening an NPS account. Every NPS account holder is issued a 12-digit unique number called the Permanent Retirement Account Number or PRAN. The only condition is that the person must comply with the requisite Know Your Customer (KYC) norms. Every NPS account holder is issued a 12-digit unique number called the Permanent Retirement Account Number or PRAN. 

  • Why should you go for NPS?

    Wondering why you should invest in the NPS scheme? Among the range of benefits that NPS offers, it is also a low-cost pension and investment product. Besides being effective for retirement planning, it offers safe returns over the long term, and considerable income post-retirement. In addition, it is tax-efficient. These features make it an ideal investment vehicle for diversifying your investment portfolio. 

    Some of the other perks associated with NPS include:  

    1. Account-holders are free to choose where to invest. 
    2. Investments under NPS are handled by extremely qualified pension fund managers (PFMs). 
    3. The account holder can decide the value of the monthly contribution. 
    4. NPS accounts can be managed from any part of India. 
    5. NPS fetches tax benefits of up to Rs. 2 lakhs annually.  

    You can read more about the different NPS benefits here.  

  • How to check NPS balance? 

    NPS offers both online and app facilities to check NPS account balance and NPS account statements. 

    Online method: 

    Step 1: Go to the CRA website and log in to your NPS account by entering your credentials such as your Permanent Retirement Allotment Number (PRAN) number as user ID and your account password. 

    Step 2: After successful login, proceed to select the Transaction Statement button and then click on the Holding Statement button. This will display your accumulated NPS balance.  

    Step 3: Click on ‘transaction statement’ button to generate the details of your transactions (including your contributions). 

    App method: 

    The UMANG or the Unified Mobile Application for New-age Governance platform plays a significant role in checking your NPS account balance through the app. UMANG is a government initiative to offer individuals a range of E-gov services under a single platform. Both Employee Provident Fund Organisation (EPFO) and NPS services are easily available on the UMANG platform. 

    Download the UMANG app and log in. Then, search for NPS and enter your NPS log in details for NPS balance check. 

    Click here to begin your NPS investment journey. 

    * Terms and Conditions apply.  The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action.