Launched in 2004, the National Pension Scheme (NPS) was designed to provide the common individual with a reliable source of income after retirement. This initiative addresses significant expenses that often arise during old age, ensuring financial security when regular income ceases. Investing in NPS is highly beneficial as it offers substantial returns, even with minimal contributions, helping individuals build a sizable retirement corpus over time.
Maintaining the same social and financial status post-retirement can be challenging without a steady income. This is where the NPS becomes invaluable. Under the NPS, employees contribute a portion of their salary regularly until retirement. Upon retirement, they receive this accumulated amount as a pension paid out in monthly installments, effectively bridging the income gap in their senior years.
Creating an NPS Account
The Pension Fund Regulatory and Development Authority (PFRDA) governs all aspects of the NPS. It offers convenient options for opening an account through both offline and online methods:
Offline Mode:
To enroll offline, visit a nearby Point of Presence (PoP), which is typically a bank branch. Obtain a subscriber form and submit it along with your KYC documents. If you are already KYC-compliant with the bank, simply submit the form. After your initial investment, you will receive a Permanent Retirement Account Number (PRAN) and password in your welcome kit. This service requires a one-time fee of Rs 125 to activate your NPS account.
Online Mode:
Thanks to advancements in digital technology, you can now open an NPS account entirely online. Your bank account must be linked to your Aadhaar, PAN card, and mobile number to facilitate digital verification. Once linked, you can generate a One-Time Password (OTP) to create your PRAN instantly, eliminating the need for physical visits.
Types of NPS Account
The NPS offers two types of accounts: Tier 1 (default and mandatory) and Tier 2 (optional). Below is a detailed comparison:
| Particulars | NPS Tier-I Account | NPS Tier-II Account |
| Status | Default | Voluntary |
| Withdrawals | Not permitted before maturity | Permitted anytime |
| Tax exemption | Up to Rs 2 lakh per annum under Sections 80C and 80CCD | Government employees exempt up to Rs 1.5 lakh; others no exemption |
| Minimum contribution | Rs 500 per contribution; Rs 1,000 per annum | Rs 250 per contribution |
Central Government employees are required to contribute 10% of their basic salary to their NPS Tier-I account.
Tool to Estimate Returns on NPS
Just like Fixed Deposits (FDs), you can estimate your NPS returns using an online calculator. You’ll need to input the following parameters:
- Current Age
- Retirement Age
- Monthly NPS Contribution
- Expected Rate of Return on NPS Investments
- Annuity Period
- Percentage of Pension Wealth to Invest as Annuity
- Expected Rate of Return on Annuities
Based on these inputs, the calculator provides an estimate of the total corpus at maturity and the monthly pension payout, tailored to your expected returns.
For example, consider Mr. Ram, a 26-year-old government employee contributing Rs 1,000 monthly to the NPS. Planning to retire at 60, he aims for a 7% annual return on his investments. He intends to allocate 40% of his pension wealth to purchase annuity, expecting a 7% return from it.
Mr. Ram’s Pension Account Status at Retirement as Calculated by the NPS Calculator
- Total Corpus Generated: Rs 16,77,808
- Annuity Purchased: Rs 6,71,124
- Lump Sum Withdrawable on Maturity: Rs 10,06,084
- Expected Monthly Pension: Rs 3,915
The NPS stands out as an excellent retirement plan that delivers robust returns, even with modest monthly subscriptions, highlighting its long-term benefits and reliability.
Moreover, Bajaj Finance’s Online FD calculator provides a straightforward tool to calculate Fixed Deposit maturity values by entering the interest rate and tenure.
Therefore, both the National Pension Scheme and Bajaj Finance Corporate Fixed Deposits should be among your top investment choices due to their capacity for secure and attractive returns.
For those interested in learning more about Types of property investments, please visit our dedicated Business category for comprehensive information and updates.
As retirement planning becomes increasingly critical amidst rising living costs, the NPS remains a cornerstone of financial security for millions in India. Its flexibility, tax benefits, and potential for market-linked growth make it an essential portfolio component for individuals across all professions. Understanding and utilizing digital platforms to manage NPS accounts can simplify investments and encourage disciplined savings. Furthermore, combining NPS with complementary instruments like corporate FDs optimizes your retirement income strategy, ensuring a well-rounded and financially stable future.
