All you need to know about NPS

Last Updated at: Apr 06, 2020
All you need to know about NPS

National Pension Scheme(NPS) is the basic investment which happens on investment scheme and is introduced by the Government of India.It is basically a well-defined, voluntary retirement savings scheme. As the government is implementing it, it is considered to be safe. The best option for saving the income is through the NPS.

NPS – National Pension Scheme is one of the key investments that can happen on the investment regime and it was introduced by the Government of India. It is actually a voluntary, well-defined retirement savings scheme. The saving scheme is usually considered to be safe as it is one of the government scheme that can be implemented.

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The best option to deal with the plan of savings out of the income is to save through the NPS is what some people think. But there are some hidden concepts in it which have to be under the knowledge of the people. The government sector workers and few private sectors make it compulsory to invest in the NPS from their salary.

Tax benefit – 

It has to be noted that the NPS is actually not of a pension scheme as such. It can be used to get a life insurance scheme and the tax benefit of 50,000 rupees is what that attracts a huge amount of people. But the lesser known fact is that the taxes that are laid on it during post-retirement is unhearable.

The whole concept can be broken down as:

If you are getting an NPS corpus of 1 crore rupees at the time of retirement, it is a mandatory rule that the 40% of the whole amount should be spent on an insurance policy or annuity policy. So the monthly income that is generated through this policy will be considered as equal to your basic pay through which the general taxes are levied as equal to the basic pay. Now the rest 60 lakhs would be left with your bank account, but here too u have a hidden clause which requires you to take only 40 lakhs in your account. The rest 20 lakhs will come under the tax scanner unless we take another annuity scheme to buffer the tax regime that has been intruding the way.

Bond risk

The additional risk involved in this NPS is that it is an investment over the corporate bonds and government bonds. Government bonds generally do not have any added risk but corporate bond does have the risk of changing the credibility of the bond at any point of time.

The scheme you take has bonds of corporate nature with the highest attainable ranking. Still, anytime it is not an absolutely stable ranking. The ranking would be in change anytime or the ranking can even go to the lowest attainable rank possible.

Lack of flexibility

The NPS can be a pain in some cases to most of the people, it lacks flexibility in your money’s movement. The lack of complete utilization of the matured amount by the scheme holder is one of the base reasons for most people not to prefer such an investment. The next inflexible issue is the inability in taking out the money till the age of 60. These reasons stand well to avoid for those who need cash.

Lack of choice

The absolute lack of choice in selecting the equity investments stands as a bar in development of this kind of investment. The reason for compulsory investment is to encourage the investment in equity but when there is no option to choose, then the young people choose to defer from the choice.


The concept of NPS is an attempt by the government to stop defined pension to workers. The major drawback is that you can never take the 40% of your investment can never be liquidized. This is so much against the basic concept of investment. It is up to the investor to decide on choosing such an option.

All the government workers and few sectors in private are making it compulsory to do investment in NPS.The NPS is also used as a life insurance scheme. The main drawback of NPS is that you will not get 40% of your investment in cash. The investor has to decide and choose the option for having NPS.