The National Pension Scheme (NPS) was introduced for salaried people in 2004 as an alternative to employee provident fund scheme to move from defined benefits system to defined contribution for retirement benefits. The scheme was extended to all the persons later on. Of late interest of people has grown substantially in NPS. Since subject of NPS is very wide in itself and can not be covered in one article to in order to heal readers understand NPS thoroughly I have decided to write a series of articles covering entire gamut of various aspects of NPS. Here is first article on basics of NPS.

What is an NPS

Since the government in India does not run any social security scheme to take care of its citizen after retirement, NPS was introduced by government under which you can contribute money in order to accumulate funds for your retirement corpus with low cost. This is specifically useful for self employed category of persons who do not have scheme similar to provident fund scheme available for salaried people in organised sector.

Who can open the NPS account?

Any individual who is a citizen of India can open account under NPS. So, an NRI who has retained his Indian passport can also open this account.  The rules have been amended on October 2019 to allow Overseas Citizen of India to open the NPS account. Unlike PPF account where the criteria for opening PPF account is based on your residential status under Foreign Exchange Management Act (FEMA) where even a foreign national who has been working in India can open a PPF account here but he can not open an NPS account here as though residing in India he still continue to be non Indian Citizen. For opening NPS account, a person should have completed 18 years of age on the date of opening the account. Initially the upper age limit for entry into NPS account was set at 60 years but the same has later on been extended to 65 years in November 2017 in view of the fact that many people continue to work beyond 60 and till 65 even after retirement. A person who has been declared an insolvent and has not been discharged as insolvent cannot join this scheme. A person of unsound mind also cannot open account under NPS.

For such late joiners the NPS account will  mature at the subscriber reaching the age of 70 however for those who join before 60 years, NPS account matures on on completing 60 years of age. A subscriber to NPS account has an option to extend this beyond 60 years upto 70 years of age.

Though you are allowed to open a PPF account for your minor child as a guardian this is not possible in the case of NPS as the it can only be opened by a major persons. Moreover in case of PPF, you can contribute to the PPF account

Limit on contribution to NPS account

Unlike a PPF account where you cannot deposit more than 1.50 lakh in a single PPF account in a year, no such restriction is applicable in case of an NPS account. So  you are allowed to put in any amount in your NPS account. It may be noted that even if the tax laws have some restrictions on the amount upto which you can claim the tax benefits for contribution made in the NPS account, you can still deposit any amount in your NPS account beyond the limit upto which tax benefits are available.

Where the account can be opened?

The NPS account can either be opened online of offline. The online account can be opened the following link of NDSL. https://enps.nsdl.com/eNPS/OnlineSubscriberRegistration.html?appType=main

Or this link of Karvy Fintech :- https://enps.kfintech.com/registration/

For facilitating opening of an NPS account offline the government has nominated  many entities. Such entities called Point Of Service (POS0

include various nationalised banks as well as private banks. Additionally some more entities like Indian Postal Department, Stock Holding Corporation, UTI Asset Management Company and UTI Technology Services Limited etc. have also been appointed for the purpose of opening an NPS account. I will discuss in detail the process of opening an NPS in subsequent article. These entities have in turn nominated a few branches as service providers and are called POP-SP.

So, you can see that many entities have been nominated for facilitating of opening the NPS account, hence you will not find it difficult to identify the POP for opening your account.

Joint holding and nomination

The NPS account can only be opened in a single name however the rules allow you to appoint maximum of three nominee for your NPS account. The nominee can be appointed at the time of  opening the NPS account. Since it is a prudent practice to have nominee for all your investments, you should appoint nominee for your NPS account as well. Nominee can be a major or a minor but in case of minor being appointed as nominee, you need to furnish details of the guardian with date of birth of the minor. While nominating more than one nominee, you need to specify shares of each nominee in percentage terms. Please ensure that share is not mentioned in fraction and sum of all the nominees add to 100%.

Can one  have both, employee provident fund account and NPS account?

Only an employee can join an employee provident fund account initially though he can continue to retain it even after leaving the employment or after retirement but NPS account can be opened by any one whether salaried or not. So is the case with PPF. In fact a salaried person can have all these account together at the same time.

Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant his twitter handle.

Author Bio

More Under Finance

4 Comments

  1. Govindaraju Hanumantha rao says:

    1.one person is having more than 4 PRAN Nos.
    percentage of funds pooled are kept in different sectors of MF equity and debt for which on an average returns are less than 13% max.
    for future investments inflation @ 6% is to be accounted for. then what is use of this as an investment ? moreover women like gold (ETF and land or RE) and prefer these investment only whereas we have population of women outnumber men hence this scheme will not workout.

    1. Balwant Jain says:

      How can one person have more than one PRAN?
      If the returns are around 13%, do you think these are not good returns?
      Gold suffers from recency bias.
      If you exclude one year performance of gold and equity, equity has performed better than gold in last 5,10,15, 20,30 and 40 year periods.
      Gold gives you insulation against inflation in the long run but equity only helps you create wealth.

  2. ghanumantharao says:

    Sir NPS is not a successful scheme like APY as there are anomalies in investment of pooled funds by aggregator in 5 or six notified stocks or MF agencies wherein returns are not sure and as much expected by the savers. i am a trainer i know there are 4 loopwholes in the system.

    1. Balwant Jain says:

      Please elaborate on the loopholes in the scheme.
      You can not compare the APY and NPS. Both are meant for different category of persons.

      NPS is supposed to be combination of investment in equity, corporate debt and government securities.

      I had opened my account long back. My experience has been good.
      NPS works on mutual fund concept.
      What is your experience of investing in NPS?

Leave a Comment

Your email address will not be published. Required fields are marked *