PensionBox Blogs
Everything to know about National Pension Scheme
Remy Sharp
Vanshika Agarwal
April 07, 2022

Three things that will help you save up for your Retirement Goal.

  • Discipline/ Vigilance, The price of discipline is always less than the cost of regret.
  • Financial Security, Helps you lead a fuller life.
  • PensionBox, India’s first digital pension platform that will help you track your retirement plan.

Are you looking for an Investment product that helps you to plan your retirement keeping the above-mentioned factors in mind?

Your answer is the National Pension Scheme.

NPS or National Pension Scheme is a voluntary defined contribution scheme where you can create a Retirement fund that will help you secure your old age. While you’re working you can invest a portion of your salary towards the NPS and it can be withdrawn later in lump sums or annuities.

But wait, what's a Defined contribution plan?

In a voluntary defined contribution plan, an individual makes contributions towards their pension fund by taking a small sum out of their salary whereas if you’re a salaried individual, your employer can also contribute a similar amount towards your retirement fund.

The NPS scheme is regulated by the PFRDA (Pension Fund Regulatory and Development Authority). This scheme can be availed by every citizen (resident or non-resident) between the ages of 18-and 65 years.

An NPS account can be opened online as well as offline (through POPs) and transfer our data to the Central Record Keeping Agency. The funds submitted to the POPs are then sent to the Trustee bank(Axis Bank). The Trustee bank deploys these funds for Investment in Pension Funds like LIC, HDFC Pension fund etc. This entire process is supervised and managed by the NPS Trust and PFRDA.

Fund Managers.

NPS helps you save up for your retirement but do you know who manages these funds? Let's find out:

There are a total of 7 Pension Fund Managers in India among which a private investor can choose :

  • SBI Pension Funds Pvt. Ltd.
  • LIC Pension Fund Ltd.
  • UTI Retirement Solutions Ltd.
  • HDFC Pension Management Co. Ltd.
  • ICICI Prudential Pension Fund Management Co. Ltd.
  • Kotak Mahindra Pension Fund Ltd.
  • Aditya Birla Sunlife Pension Management Ltd

Government employees do not have the option to choose pension fund managers. Their funds are managed equally by SBI, LIC and UTI. A fund manager can further deploy the funds into Equity, Corporate Debt, Government bonds and Alternative asset class. Post selecting a Fund manager, an Investor has the opportunity to decide his asset mix which he can do by Active choice or Auto Choice.

Active Choice

In Active Choice, an investor can decide the percentage of his Asset mix among equity, debt, Government securities and Alternative investment. However, there are caps on the maximum amount an investor can invest in Equity i.e., 75% because of the high risks associated with it. The alternative class has a cap of 5% as it's a very high-risk category of Assets.

Auto Choice

In auto Choice, you have to choose a plan amongst Aggressive, Moderate and Conservative Life cycle funds. The aggressive life cycle fund invests maximum in equity i.e, 75% and as the investor ages, the proportion from equity goes down as we assume his risk-taking capability falls. Similarly, Moderate investors invest only 50% in Equity and Conservative invest only 25% in Equity.

Now as you turn 60 years of age, you will be eligible to withdraw 60% of your retirement corpus in a lump sum and the remaining can be withdrawn in the form of annuities.

Extra Tax Benefits

The National Pension Scheme offers an additional tax benefit of ₹50,000 over and above the limit of 1,50,000 under section 80(C). This means if you invest in NPS, you can claim a tax deduction of up to ₹2,00,000. The taxation benefits of NPS are ever-evolving and the Government brings out amendments now and then, hence to get tax benefits by investing in the NPS, you must consult your financial advisor.

But where and how does PensionBox fit into this picture?

PensionBox helps you to find out how much you need to save every year to live your retirement days the way you want to.

  • It brings you the advanced tech that helps you to save efficiently.
  • It helps you keep track of your Investments in a synchronised manner.

At this point, we urge you to plan your retirement as early as you can as the earlier you begin saving, the larger the benefits of compounding are.