Advantages and Disadvantages of NPS

Save & Invest

Every trading plan has pros and cons. By knowing both, you can make the best investment choice.

NPS, or the National Pension Scheme, is a private, fixed-contribution retirement savings plan. It allows you to make the best choices for your future by making systematic saves during your working lives. The National Pension Scheme (NPS) is a government-based pension plan. It is a tax-saving strategy under Section 80C. In India, NPS, like EPF (Employee Provident Fund) & PPF (Public Provident Fund), is an EEE (Exempt Exempt Exempt) tool. Its key goal is to build retirement funds. The investment also gives tax perks. But first, let’s study the definition and the advantages of NPS.

What Exactly is NPS?

NPS ranks among the greatest investment plans overseen by the Regulatory & Development Authority for Pension Funds (PFRDA).

The PFRDA set up the National Pension Scheme Trust (NPST), which serves as the rightful owner of all funds under this investment scheme. NPS stands for the National Pension Scheme.

Initially, the advantages of NPS only applied to Central Government workers. However, NPS advantages are now open to all Indian nationals. It is very helpful for those employed in the private sector who need a monthly post-retirement salary. NPS is scalable across vocations and places, offering tax breaks for inputs under Sections 80C & 80CCD (1B).

How Does the National Pension Scheme Work?

National Pension Scheme is a market-linked pension plan in which you may invest monthly until you retire. Skilled fund managers are in charge of these investments. At the age of 60, you may take 60% of the sum, but the rest 40% must be invested in an annuity. This annuity may help you create a stable income once you retire.

Advantages of The NPS Scheme

  • Make Fund Managers’ Investments

All funds placed by you are invested by expert, skilled, and experienced fund managers. Funds are controlled by the PFRDA or Pension Fund Regulatory & Development Authority. The assets are invested in a variety of portfolios that include corporate shares and bonds, bills, & government bonds, along with many other things. This is done in conformity with specific approved investment rules to get different advantages of NPS.

  • Higher Profits

Investing in Tier 2 accounts of an NPS scheme results in higher returns that grow to be large at the age of retirement. The assets that collect in the Tier 1 account also pile up funds for pension and help to get different advantages of NPS.

Savings in ploys such as the EPF (Employees Provident Fund) grow at a very slow rate. This is because all assets are in debt tools as well as federal bonds, which rarely offer yields higher than the rate of inflation. So, a large part of NPS assets is directed towards the stock market, and the interest earned is higher. While NPS pay-outs in the type of pension plans & annuities are subject to tax, the yields are still much larger than the EPF.

  • There Are No Barriers To The Intensity of Donations

You can deposit funds in any of the NPS profiles on a yearly, semi-annual, quarterly, or monthly basis. You can also raise or reduce account donations so that the least donation (of Rs. 6000) is formed to avail different advantages of NPS.

  • Low Investments

Tier 1 accounts can be opened for Rs. 500, while Tier 2 accounts can be opened for Rs. 1000. The funds can be placed by check, credit, or demand draft.

  • Simple Paperwork

You can easily join the scheme via various channels. You only need to fill out the NPS form and provide proof of identity & address to enjoy the various advantages of NPS.

  • Larger Canvas & Broader Coverage

The scheme is open to all Indian citizens and NRIs. It has a broad age range, ranging from 18 to 60 years. At first, it was only open to government employees, but later (from 2009 onwards), anyone, including freelancers, self-employed people, and businessmen, can invest in the scheme.

  • Simple to Use

The plan is easily accessible, and you can easily sign up for it by visiting a nearby private or public sector bank.

Disadvantages of NPS

Aside from the advantages of NPS, this scheme also has its own set of drawbacks. These include:

  • Withdrawal Limits

Just before you reach the age of 60, all withdrawals are barred. You can make the very first withdrawal from the NPS after ten years of opening your account and a total of three withdrawals until the age of 60.

The withdrawal sum cannot exceed the total amount of your contributions. Employer donations to the employees’ NPS fund are not deemed subscriber investments.

  • Withdrawal Taxation

When the scheme matures, the NPS case, which you can use to buy annuities or draw pensions, becomes taxable. The Indian government taxes 60% of NPS investments, while 40% is tax-free.

Other products, such as the Public Provident Fund as well as EPF, are not taxed when they mature. You can also invest in mutual funds (equity), which offer much higher returns and aren’t taxed when they mature.

  • Account Opening Limits

You can only have one NPS account your whole life. While the PRAN (Permanent Retirement Account Number) could be easily shifted across geography & jobs, only one PRAN will receive the sum.

  • Investment Limits

You cannot invest more than 50% of your total investment within the NPS account in stocks.

  • No Guaranteed Returns

Since NPS is a national plan, the corpus is made based on the returns produced by corporate bonds, federal securities, & equity. As a result, market changes can hurt your returns/gains.

NPS Funds in Several Locations

NPS has three funds available for you. These are:

  • A firm’s funds
  • Stocks
  • Government securities

You may invest up to 100% of your money in the government securities fund & corporate assets. The investments are made by:

  • Active choice: You have the choice of picking where to invest your money.
  • Auto selection: When the fund manager makes investments based on the investor’s age.


Now that you are aware of a few of the key pros and cons of the NPS scheme, you can pick whether or not it’s the best choice for you. NPS, like any other investment, has some drawbacks. However, the majority of NPS advantages were willfully set up to meet the scheme’s many goals.

If you want to learn more about the benefits of the NPS scheme, visit Piramal Finance and explore the products and services they offer.