The scheme offers two kinds of accounts namely, Tier I and Tier II accounts<\/strong>. Tier I account is mandatory for a subscriber of the NPS, whereas Tier II account is optional in nature. One can open a Tier II account only if he has a Tier I account. Major difference between the two accounts is that in Tier I account, there are restrictions on withdrawal whereas, a subscriber is free to withdraw money from the Tier II account.<\/p>\n The minimum annual contribution for Tier I account is Rs. 6000, which can be paid at once or in installments of at least Rs. 500. The minimum contribution in Tier II is Rs. 250 per transaction and at the end of a year, the minimum balance in this account should be Rs. 2000 or else the subscriber is liable to pay a fine.<\/p>\n NPS is a cheap product as it charges a fund management fee of 0.0102% for Government employees and 0.25% of the invested amount for private sector. When the scheme was introduced in 2009, this charge was just 0.0009%. However, later it was revised to 0.25% to make the scheme more sensible for the fund management houses. There are other account opening, maintenance and transaction charges, which are not very high. Even with the revised rate, the NPS continues to be the one of the cheapest pension products in the world.<\/p>\n The NPS is a pension scheme in the true sense as it places adequate restrictions on withdrawal of invested amount. A subscriber has the following withdrawal options:<\/p>\n Thus, while the lock-in ensures the subscriber does not use the funds during his working life, annuity makes sure the money is paid in installments over a long period thus avoiding non-judicious usage if obtained in lump sum.<\/p>\n The NPS money is managed by seven fund managers appointed by the PFRDA. A government employee has the choice of 3 fund managers whereas others have the choice of 6 fund managers. A subscriber has the power to change his fund manager at minimal cost.<\/p>\n The contribution from NPS subscribers is invested in a combination of asset classes. The asset classes available are:<\/p>\n Certain points for private sector asset allocation: –<\/strong> An NPS subscriber has the power to decide the allocation of his money in the given classes, subject to the condition that the exposure to equity cannot exceed 50%.<\/p>\n However, if a subscriber cannot decide the asset allocation himself, then his money is invested in a Life Cycle Fund, a combination of the above three asset classes. In this, with rising age, exposure to equity falls while that to Government securities rises. In the Life Cycle Fund, the allocation of funds until the age of 35 years is 50% in \u2018E\u2019 class, 30% in \u2018C\u2019 class and 20% in \u2018G\u2019 class. After 35 years of age, the weight in \u2018E\u2019 class will decrease annually and the weight in \u2018G\u2019 class will increase annually till it reaches 10% in \u2018E\u2019, 10% in \u2018C\u2019 and 80% in \u2018G\u2019 at the age of 55. Over the years, the allocation should look like: –<\/p>\n Here, the logic obviously is that at a young age, one can afford to take more risk seeking higher returns by investing more in equities as he has time to make for any negative events. However, with rising age, it is advisable to invest in less risky instruments and move towards a more stable fixed return low risk portfolio.<\/p>\n Certain points for Government employee asset allocation: –<\/strong> In case of Government NPS, there isn\u2019t much of a choice in asset allocation. Once a company chooses the fund manager, the manager can allocate assets subject to a cap on each asset class \u2013 up to 55% in government securities, up to 40% in corporate bonds and up to 10% in equities.<\/p>\n Yes. The NPS does provide certain tax saving options, more so in case of salaried employees. An employee\u2019s contribution towards NPS up to 10% of basic plus dearness allowance (DA) is eligible for income tax deduction under Section 80 CCD. This is within the Rs. 1 lakh exemption available under Section 80C. The salaried class can avail further tax benefits as the contribution made by the employer up to 10% of basic plus DA is eligible for deduction under Section 80CCE and this is over and above the Rs. 1 lakh 80C limit. In this case, even the employer can claim tax benefit for its contribution by showing it as a business expense in the profit and loss account.<\/p>\n For self-employed people, NPS contribution up to 10% of gross total income in the previous year is eligible for deduction within the Rs. 1 lakh 80C exemption. The NPS is currently under the EET (exempt, exempt, tax) which means it is tax free on contribution and accumulation but taxable on maturity. Hence, an NPS subscriber is taxed on withdrawal and also when he obtains annuity.<\/p>\n This article talks about the features of the NPS. However, you may still be thinking whether this product is worth investing? What are its advantages? What are its disadvantages? Is it better than other retirement planning products available in India? These are some of the questions we will take care of in our next article. Till then Happy Investing!<\/p>\n If you liked what you read and would like to put it in to practice Register at MoneyWorks4me.com<\/a>. You will get amazing FREE features that will enable you to invest in Stocks and Mutual Funds the right way.<\/p>\n Need help on Investing? And more<\/b>\u2026.<\/b>Puchho<\/b> Befikar<\/b><\/span><\/p>\n Kyunki<\/i><\/b> yeh<\/i><\/b> paise<\/i><\/b> ka<\/i><\/b> mamala<\/i><\/b> hai You may be aware of the young average age of the Indian population, with more than 50% being between the age of 25-50. By 2050, most of them would be approaching their retirement. Moreover, with improving life expectancy, tomorrow’s retirees will need to accumulate a bigger corpus for their sunset years. The way to ensure this is good retirement planning.<\/p>\n So, have you planned for your retirement yet? If not, lets learn about an instrument that helps you plan your retirement in a disciplined manner, along with the provision of tax benefits i.e. NPS. Read on for more…<\/p>\n","protected":false},"author":74,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[1145,1144],"tags":[844,421,45,288,48,49,120,847,846,845,843,81,85,291],"modified_by":"MoneyWorks4me","_links":{"self":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/7829"}],"collection":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/users\/74"}],"replies":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/comments?post=7829"}],"version-history":[{"count":0,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/7829\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/media?parent=7829"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/categories?post=7829"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/tags?post=7829"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}What is the fund management cost?<\/span><\/h3>\n
What are the norms for withdrawing the invested amount?<\/span><\/h3>\n
![\"Withdrawal](\"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-content\/uploads\/2013\/02\/NPS-withdrawal-options.png\" "\\"NPS")
<\/a><\/p>\nWhat about the fund managers and the asset classes?<\/span><\/h3>\n
<\/p>\n\n
<\/p>\nDoes NPS help in saving tax?<\/span><\/h3>\n
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