Important points to keep in mind when investing in NPS

After spending years as a working professional, you look forward to enjoying your retirement period. This is the time you can reconnect with your loved ones and create happy memories. Rather than being hopeful of the good times that lie ahead, the concern of finances often worries you. To ensure you can enjoy your retirement and are financially secure, you should invest in the National Pension Scheme.
NPS is a voluntary retirement savings scheme that all Indian citizens can avail. Since the investment vehicle invests in Equity, Corporate and Government Bonds, and other alternative assets, it earns you attractive returns. You can use an NPS Pension calculator to determine the returns you earn from your investment. Following are some important pointers you should be aware of:
Types of NPS Account
There are two types of NPS Accounts: Tier 1 and Tier 2. The NPS Tier 1 is a mandatory account. Government employees should contribute 10% of their basic salary and Daily Allowance to the savings scheme. Non-government employees can contribute any amount to the scheme starting from Rs. 500. If you are a private sector employee, you and your employer should contribute 10% of your basic salary and DA to the savings scheme.
The NPS Tier 2 Account is voluntary. The contributions you make here are over and above the Tier 1 contribution. Here, the government or the employer does not contribute. No tax benefits apply to Tier 2 Account. However, you can easily withdraw funds from the account.
NPS Investment method
There are two ways to invest in NPS: auto and active method. Returns from both investment methods are derived and compared using an NPS Pension calculator. The auto investment method is a passive choice. Here, a professional fund manager looks after your investment. They solely decide the asset allocation, monitor the investment’s performance, and make changes whenever required.
With the active investment method, you oversee your investment. The choice of asset allocation and modification depends entirely on you. There is a default investment option as well. Here, about 50% of the investment amount goes into Government securities, 40% into Debts, and the remaining 10% into Equities. Generally, government employees can opt for this investment method.
NPS tax benefits
If your aim is wealth creation and saving taxes, invest in NPS. This falls under Section 80C of the Indian Income Tax Act of 1961. You can claim a tax deduction of Rs 1.5 lakh on your investment returns. An additional tax benefit of Rs. 50,000 is also accessible under Section 80CCD 1B. Note that NPS returns on maturity are not entirely tax-free. Around 40% of the corpus sum is tax-free, while the rest is taxable by law.
Despite this tax implication, NPS is the best investment instrument you can consider. Use an NPS Pension calculator to find the returns you reap.