What is NPS?

Background

NPS (National Pension System) is a low-cost, market-linked pension scheme regulated by PFRDA. It allows both salaried and self-employed Indians to build a retirement corpus by investing in a mix of equity and debt.

Explanation

You open an NPS account and contribute regularly. Your money is invested in allocations you choose (equity, corporate debt, government bonds, etc.) by professional fund managers. At retirement, a part of the corpus must be used to buy an annuity for lifelong pension, while the rest can be withdrawn in lump sum. Sections 80CCD(1), 80CCD(1B) and 80CCD(2) provide powerful tax deductions for NPS contributions.

Example

A 30-year-old investing ₹10,000 per month in NPS with a balanced equity-debt allocation could build a large corpus by 60. At retirement they might withdraw 60% tax-efficiently and use 40% to buy an annuity, creating a steady monthly pension.

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