National Pension System (NPS) Features, Interest Rates Explained

National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life. NPS seeks to inculcate the habit of saving for retirement amongst the citizens. It is run by the Pension Fund Regulatory And Development Authority (PFRDA). It is an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India, said PFRDA.

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Where does National Pension System (NPS) invest your money?
Under the NPS, individual savings are pooled into a pension fund which is invested by PFRDA-regulated professional fund managers as per the approved investment guidelines into diversified portfolios comprising government bonds, bills, corporate debentures and shares, stated PFRDA on its website, pfrda.org.in. These contributions would grow and accumulate over the years, depending on the returns earned on the investment made.

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Advantages of National Pension System (NPS)
NPS offers a range of investment options and choice of Pension Fund Manager (PFMs) for planning the growth of your investments in a reasonable manner and see your money grow, said PFRDA.
Individuals can switch over from one investment option to another or from one fund manager to another subject, to certain regulatory restrictions. The interest rates on NPS are totally market-related.

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How does National Pension System (NPS) work?
Opening an account with NPS provides a Permanent Retirement Account Number (PRAN), which is a unique number and it remains with the subscriber throughout his lifetime. The scheme is structured into two tiers:

Tier-I account: This is the non-withdrawable permanent retirement account into which the accumulations are deposited and invested as per the option of the subscriber.

Tier-II account: This is a voluntary withdrawable account which is allowed only when there is an active Tier I account in the name of the subscriber. The withdrawals are permitted from this account as per the needs of the subscriber as and when claimed.

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Is National Pension System (NPS) the only pension plan available in the country?
No. Some mutual funds and insurance companies also offer pension or retirement plans, but these are not under the jurisdiction of PFRDA. Some other retirement plan options are the employee provident fund, gratuity etc, which are offered by employers to their workers and employees.