What is NPS and why should you know about it?
Let’s talk about something that sounds boring at first, but is actually super important — your future. More specifically, your future income. That’s where the National Pension Scheme (NPS) comes in.
At FOLO, we’re always thinking long-term. Not just about your day-to-day habits, but also your financial well-being. So if you’ve heard of NPS and wondered what it’s about — or why everyone from your HR rep to your uncle keeps mentioning it — here’s the full story in plain, simple words.
TL;DR
If you’re looking for a simple, smart way to save for retirement — NPS is worth considering. It’s flexible, well-regulated, comes with great tax benefits, and helps you build a safety net for your older self.
At FOLO, we believe in planning for the future without overcomplicating it. NPS is one of those tools that makes adulting a little easier — and way more secure.
So, What is the National Pension Scheme (NPS)?
The National Pension Scheme is a government-backed retirement savings plan. You put in small (or big) amounts over the years, and when you retire, you get a steady income back.
It’s kind of like planting a money tree for your older self — one that keeps giving even after your paychecks stop.
Who can join?
• Any Indian citizen (resident or non-resident)
• Age between 18 and 70 years
• You need to comply with KYC (Know Your Customer) norms
That’s it. No salary limits, no job-type restrictions. You can be salaried, self-employed, or freelancing your way through life — NPS is open to all.
How does NPS work?
When you invest in NPS, your money doesn’t just sit around — it’s actively managed and invested in:
• Equity (stocks) – higher risk, potentially higher reward
• Corporate bonds – moderate returns, relatively stable
• Government securities – very low risk, lower returns
• Alternate assets (only in some cases)
There are two types of accounts:
• Tier 1 Account: This is the retirement account. It’s locked-in until you’re 60, with partial withdrawal options.
• Tier 2 Account: This works more like a regular savings account. You can withdraw anytime, but it doesn’t come with tax benefits.
You can either choose your own asset mix (Active Choice) or let the system decide based on your age (Auto Choice). Younger? More equity. Older? More safety.
How much should you invest?
There’s no one-size-fits-all answer here, but here’s a general idea:
• Minimum contribution for Tier 1: ₹500 at account opening, ₹1,000 per year
• Tier 2: Minimum ₹1,000 to open, no yearly minimum
Of course, you can invest more, and the more you invest early on, the better your retirement pot grows thanks to compounding.
What happens when you retire?
At 60 (or later, if you choose to delay), you can:
• Withdraw up to 60% of the total amount as a lump sum (and it’s tax-free!)
• Use at least 40% to buy an annuity — which is a fancy word for a regular income plan
If your total corpus is under ₹5 lakh, you can withdraw the entire amount without buying an annuity.
Why should you consider NPS?
Here’s what makes NPS stand out:
✅ Tax Benefits
• Deduction up to ₹1.5 lakh under Section 80CCD(1)
• Additional ₹50,000 under Section 80CCD(1B)
• If your employer contributes to NPS, that amount (up to 10% of salary) is tax-deductible under Section 80CCD(2)
✅ Low Cost
Fund management charges are minimal — much lower than typical mutual funds or insurance plans.
✅ Flexibility
You decide how much to invest and where. You can also switch between fund managers or asset mixes.
✅ Transparency & Regulation
Managed by PFRDA (Pension Fund Regulatory and Development Authority), so it’s safe, clean, and monitored.
Things to keep in mind
• Returns aren’t guaranteed (this isn’t a fixed deposit), but historically they’ve been between 8–10% per year.
• Partial withdrawals are allowed but with conditions.
• You can’t withdraw everything before 60 unless you meet specific early exit rules.
How to Start?
You can open an NPS account online through platforms like:
• Your bank (like SBI, ICICI, HDFC, Axis)
• Government offices or registered Points of Presence (PoPs)
You’ll get a PRAN (Permanent Retirement Account Number), and you’re good to go.