What are the Factors to Keep in Mind While Choosing a Good NPS Scheme?

Personal Finance

Are you a retired employee or nearing retirement? Are you thinking of applying to the NPS scheme?

Do you want to grow your money? Have stable returns? Read about the National Pension Scheme to learn more!

The National Pension Scheme is an Indian government initiative. The NPS plan was designed for employees who want to ensure their financial security.

It reduces the investment risk. The National Pension Scheme also provides good returns. There are a lot of perks to this pension scheme. You should think about these things before deciding on an NPS scheme to apply for.

What is an NPS account?

  • The National Pension Scheme is a programme created for retirees who want financial stability.
  • The NPS scheme was launched in 2004 only for government workers. NPS became available to the general public in 2009.
  • Those between the ages of 18 and 65 have the option to invest in the NPS scheme.
  • Your funds will be invested across four different asset classes. Upon maturity, you’ll have a reliable source of income from which to meet your obligations.
  • Under NPS, the pension scheme is split between two separate accounts, Tier 1 and Tier 2.

Tips to Keep in Mind Before Investing in NPS Scheme

The National Pension Scheme is immune to market volatility. There are still a few things you should know before investing in an NPS scheme.

A New Pension Scheme to Replace the Old

The previous pension schemes for government employees in India were replaced with the National Pension Scheme. It may not be as profitable as older pension schemes.

Limits on withdrawals

In the case of a Tier 1 account, no withdrawals are permitted until maturity. Withdrawals in one lump sum are permitted only under special circumstances, like:

  1. Marriage of offspring
  2. Spending on college education
  3. Treatment for life-threatening illnesses
  4. Building and construction: It’s vital to note that you have to wait until your Tier 1 account is at least 10 years old before you can make a partial withdrawal. You can only make a partial withdrawal from your Tier 1 account three times.

Withdraw Taxes at Maturity

Individuals can take out 60% of their investment upon maturity under the National Pension Scheme. The remaining 40% is used to buy an annuity. But you’ll have to pay taxes on that 60% withdrawal you made. Earnings from annuity purchases are still taxed.

For each individual, only one PRAN

There is a strict limit of one NPS account per person. As a result, each individual should only have one PRAN.

Financial Resource Limitations

Investment caps are also in place under the National Pension Scheme. This cap has been established to protect the individual’s ability to meet their other financial obligations.

The Return on Investment from NPS Is Affected by the Market

There are four distinct investment options available to NPP participants: equity, government securities, corporate bonds, and alternative investment funds. The rate of return used here is based on current market conditions. Your NPS returns may suffer if the market takes a severe hit.


Most of the money in the NPS scheme is invested in the stock market, which offers a high risk but a potentially great return.

Financial Obligations of Businesses

In this case, investors usually put their money into corporate bonds or other fixed-income securities. Investors should expect a return on their money that is roughly equal to the amount of risk involved with this profile.

Governmental Debentures

The fund only purchases U.S. Treasury bonds and other government securities. These are what are known as “low-risk, low-return” funds.

Different Types of Investment Funds

This type of investment includes things like real estate investment trusts, mortgage-backed securities, infrastructure investment trusts, and so on.

The active fund permits shareholders to keep as much as 75% of their capital in equities and 5% in alternative investment vehicles until age 50. After age 50, the equity part will decrease by 2.5% every year, reaching 50% at age 60, even if you are very aggressive with your investments. Younger investors would benefit most from the increased stock allocation. But a conservative investor only needs to own government and corporate debt.

Option-based NPS Auto-Selection

Investors who want their money spread out among various asset classes will find the auto-selection NPS most useful. The money allocation starts with a high equity portfolio. This starts at a young age. It diminishes the equity instruments as the subscriber approaches retirement age.

The Aggressive Life Cycle Investment Fund

Seventy-five per cent over thirty-five is the maximum allowed for equity allocation. From there, it declines to 15% by the time you’re 55.

Mild life cycle investment fund

Up until age 35, a maximum equity allocation of 50% is allowed. By the time a person is 55 years old, the number drops to 10%.

Life Cycle Fund with a Conservative Attitude

The top ceiling of equity allocation is 25% up to the age of 35. By the time you’re 55, it’s down to 5%.

The above are the three alternatives available to the subscribers in the “auto-choice” category. At the end of each year, the portfolio is rebalanced. Equity, corporate debt, and investment securities are purchased using the available investment budget.

To summarise

The purpose of this essay is to present a comprehensive study of factors to keep in mind before choosing a good national pension scheme. To grow your money, invest. Consider the NPS scheme. Before beginning an investment scheme, research the scheme and its provider. Leave no National Pension Scheme policy unread to avoid confusion.

Start planning your post-retirement finances by learning about NPS. If the benefits meet your risk profile and investment goals, consider NPS. If you want more equity exposure, there are various mutual funds for a variety of investors.

Also, visit Piramal Finance. It has more in-depth, finance-related articles. Keep reading to know more about finance and how one can grow money!