NPS Tier 2 Advantages and Disadvantages: Know-It-All

The National Pension Scheme, commonly known as NPS, is one of the best retirement plans in India. The Government of India introduced this plan to provide regular incomes through pensions to all the policyholders. In this article, we will look at the NPS Tier 2 advantages and disadvantages. Before looking at the advantages and disadvantages of NPS, let us first look at why you should invest in the National Pension Scheme.

Key Takeaways

1. The National Pension Scheme is managed by the Pension Fund Regulator under the Ministry of Finance.
2. The policyholder can invest any amount of money anytime in a National Pension Scheme account.
3. Investing in a National Pension Scheme ensures that your retirement is financially secure and you and your loved ones can continue with their lives seamlessly.

Why Should You Invest in a National Pension Scheme?

National Pension Scheme offers regular incomes as pensions to retired people. This ensures that you do not face any financial hassles after retirement and can continue to live your life seamlessly and without any hassles. Here are a few reasons you should invest in the National Pension Scheme.

Financial Security

Financial security is one of the key benefits of investing in a National Pension Scheme. After you retire, there are chances that you might worry about how you will manage your financial requirements. Investing in a National Pension Scheme will provide you with financial security after retiring. Moreover, it will provide you with income or pension every month. This will ensure that you or your family do not encounter any financial hassles and can continue your lives easily.

Tax Deduction Benefits

Another advantage of investing in a National Pension Scheme is tax deduction benefits. Under this plan, the policyholder can claim tax deduction benefits of upto Rs 50,000 under Section 80CCD of the Income Tax Act, 1961.

This Plan is Low on Risk

Some of us do not want to take any risk while planning for financial security and investing in an insurance plan. Compared to other insurance policies, investing in a National Pension Scheme comes with a lower risk. For policyholders, who have attained the age of 50, the risk for them is 75%, which further decreases by 2.5% by the time they reach 60 years.

Premiums are Affordable

If you are looking for an insurance plan that is low on premiums and offers high returns, then the National Pension Scheme is the right choice for you. Compared to other insurance plans, the National Pension Scheme comes with a lower and affordable cost of premiums. Moreover, it offers high returns to the policyholder. This makes the policyholder invest smaller contributions and enjoy a higher compounding return after retiring.

Guaranteed and Secure Returns

One part of the money you invest in the National Pension Scheme is used for investing in equity that does not offer guaranteed returns as to how much returns will you get directly depending on how the equity performs in the market. However, the overall returns you will get from the National Pension Scheme are secure and guaranteed. This way, you do not have to worry about financial security after retirement and can spend your golden years with your near and dear ones.

Let us now look at the advantages and disadvantages of NPS

Advantages of NPS

A few advantages of investing in a National Pension Scheme are as follows –

Financial Security

Financial security is one of the key benefits of investing in a National Pension Scheme. After you retire, there are chances that you might worry about how you will manage your financial requirements. Investing in a National Pension Scheme will provide you with financial security after retiring. Moreover, it will provide you with income or pension every month. This will ensure that you or your family do not encounter any financial hassles and can continue your lives easily.

Tax Deduction Benefits

Another advantage of investing in a National Pension Scheme is tax deduction benefits. Under this plan, the policyholder can claim tax deduction benefits of upto Rs 50,000 under Section 80CCD of the Income Tax Act, 1961.

This Plan is Low on Risk

Some of us do not want to take any risk while planning for financial security and investing in an insurance plan. Compared to other insurance policies, investing in a National Pension Scheme comes with a lower risk. For policyholders, who have attained the age of 50, the risk for them is 75%, which further decreases by 2.5% by the time they reach 60 years.

Deposit Money as Per Your Convenience

One of the key advantages of investing in a National Pension Scheme is that you can deposit money at your convenience. You can choose from numerous options such as monthly, quarterly, half-yearly or yearly.

Did You Know?

Pension Fund Regulatory and Development Authority (PFRDA) is the official regulating body for the NPS scheme and was set up by the Government of India.

Disadvantages of NPS

The National Pension Scheme has a few disadvantages, which are mentioned below –

Withdrawal Limits

One of the key disadvantages of investing in a National Pension Scheme is that the policyholder cannot make any partial withdrawals before they reach the age of 60. The policyholder can make the first withdrawal only after 10 years of opening a National Pension Scheme account and 3 withdrawals until the policyholder reaches 60.

Investment Restrictions

Another disadvantage of investing in a National Pension Scheme is that it restricts the policyholder on the amount of investment they can make. The policyholder cannot invest more than 50% of the total amount of investment in equity.

Features of National Pension Scheme

Permanent Retirement Account Number (PRAN)

The National Pension System (NPS) has a unique Permanent Retirement Account Number (PRAN) for every policyholder.

Low-Cost Investment Plan

The National Pension Scheme is one of the lowest-cost investment plans in India.

Eligibility of Opening NPS Tier 2 Account

Following is the eligibility criteria for opening an NPS Tier 2 Account –

1. Should be an Indian resident
2. They should be between the age of 18- 60 years.
3. Should have a Tier I NPS account and a PRAN number.
4. The policyholder has to deposit a minimum of Rs 1000 to open an NPS Tier II account.

Steps to Open NPS Tier 2 Account

Here are the steps to open an NPS Tier 2 account –

1. Visit the official website of the electronic National Pension system (eNPS).
2. Click on the tab which says “Tier II activation.”
3. Enter your personal details, such as Phone Number, Date of Birth, Permanent Retirement Account Number (PRAN), and PAN card.
4. After clicking on Verify, you will receive an OPT on your registered mobile number.
5. Enter the OPT and click on Continue
6. Fill in your bank details and click on ‘Verify Aadhar.’
7. Choose the investment option you want to invest in and click on ‘Continue.’
8. Choose your nominee and enter his details and click on ‘Continue.’
9. Upload self-attested copies of your PAN card and cancelled cheque.
10. You will have to invest a minimum of Rs. 1000 to open an NPS Tier 2 account.
11. You will receive a receipt, after which you will have to Esign, take a printout and sign there and send it to the NSDL’s head office.

Procedure to Withdraw From NPS Tier 2 Account

A policyholder can withdraw from the NPS Tier 2 account both online and offline.

1. For online, the policyholder can raise his or her request on the official CRA-NSDL website.
2. For offline, the policyholder must fill out a UOS-S12 form, attach relevant documents and submit them to the nodal office.

Word to Remember

Permanent Retirement Account Number (PRAN) – Permanent Retirement Account Number (PRAN) is a unique account number allotted by the Government of India to every policyholder who has invested in the National Pension Scheme.

Conclusion

You now know everything about NPS Tier 2 advantages and disadvantages in India. SO, if you are planning to invest in the National Pension Scheme, you start by searching ‘best NPS to invest in’ or ‘ NPS Tier 2 advantages and disadvantages in India’ You can also get in touch with leading insurance companies that provide the best NPS for you to consider investing in.

FAQs

Read more about NPS Returns.