What is NPS Vatsalya Scheme?

NPS (National Pension System) Vatsalya is a special retirement savings scheme designed to make children ( below age 18) pension ready. Under NPS-Vatsalya parents/guardians can make regular contributions on behalf of their minor children and make them pension ready at age 60.

The minimum contribution of ₹1000 per year and no limit on the maximum contribution.

Eligibility for NPS Vatsalya

All Indian Nationals can invest in NPS Vatsalya Scheme. The eligibility conditions are as given below.

• Subscriber below 18 years of age
• Applicable for NRI & OCI Subscribers also eligible
• NRI & OCI can invest from NRE and NRO A/c. (Applicable only for NRI/OCI Subscribers)

Documents required to Open NPS Vatsalya Scheme

• Date of Birth Proof of Minor
• Guardian Signature
• Scanned Copy of Passport (Applicable only for NRI Subscribers)
• Scanned copy of Foreign Address Proof (Applicable only for OCI Subscribers)
• Scanned copy of Bank Proof (Applicable only for NRI/OCI Subscribers)

 Kindly keep the below information and documents ready

• Mobile-linked Aadhaar Card or DigiLocker of minor and guardian
• Date of Birth proof of minor (e.g., birth certificate, school leaving certificate,matriculation certificate, PAN, passport)
• Bank account details of minor (account number, IFS Code, and bank name; ensure that the bank account is in name of the individual registering for NPS)
  • In the case that the guardian is NRI or OCI, NRE/NRO Bank details of guardian are mandatory
• Scanned copy of cancelled cheque or bank passbook
• Scanned copies of your PAN Card and signature
• Ensure your UPI or Internet Banking is active (for payment purposes)

NPS Vatsalya Registration Online

1. Go to eNPS website. 
2. Find NPS Vatsalya (Minors)
3. click on ‘Register Now’
4. Submit Guardian’s date of birth, PAN number, mobile number, and email address, then click on ‘Begin Registration’.
5. Submit the OTP received on mobile number and email address of the guardian.
6. After OTP verification, acknowledgment number will appear on the screen. select ‘Continue.’
7. Provide minor details as asked
8. Upload documents
9. Click confirm
10. Initiate the initial minimal deposit of Rs.1,000.
11. PRAN will be created (Permanent Retirement Account Number)
12. NPS Vatsalya Scheme is subscribed in name of minor applicant
13. After a day, the subscriber gets a Login ID to his account held by the CRA. Using this login ID, subscriber can view all details and history of his/her account.

PRAN (Permanent Retirement Account Number) which is unique, i.e., an individual can have only one PRAN number

NPS Vatsalya Partial Withdrawal

Before Turning 18

In case a child requires money before the age 18, the money can be withdrawn subject to the following conditions:

• After 3 years of joining NPS
• Up to 25% of contributed amount ( Please note: no interest can be withdrawn)
• Available 3 times till subscriber turns 18

Partial withdrawals can be made for education, treatment of specified illnesses, disability of more than 75%, etc., as defined by PFRDA

Complete Exit from NPS after 18 Years age

After turning major, if the child ( turned major now) want to exit NPS completely ( withdraw entire money and stop contributing), the following conditions has to be met:

If Accumulated Corpus is equal to or greater than 2.5 lakh

In case the accumulated amount is greater than 2.5 lakh then at least 80% of the balance is to be utilized for the purchase of an annuity and the remaining balance in a lump sum can be withdrawn.

If Accumulated Corpus is less than 2.5 lakh

If the accumulated amount is less than 2.5 lakh the subscriber can withdraw entire balance as a lump sum

Unfortunate event with subscriber or Guardian

• Death of the minor: entire accumulated Corpus returned to the guardian.
• Death of the guardian: another guardian is to be registered through fresh KYC. In case of death of both parents, the legally appointed guardian can continue the account with or without making contributions to the account.
• Upon attainment of 18 years of age, the subscriber has an option to continue or exit from the scheme.

Upon attainment of age of 18 years

• Seamless shift to NPS Tier – I (All Citizen)
• fresh KYC of the minor within three months from date of attainting 18 years.
• Upon transitioning, the features, benefits, and exit norms of the NPS-Tier I for All Citizen Model will apply

Investment Choice

NPS Vatsalya provide three investment choice to the subscriber. All three are mentioned below:

• Default Choice: Moderate Life Cycle Fund -LC-50(50% equity)
• Auto Choice: Guardian can choose Lifecycle Fund – Aggressive -LC-75(75% equity), Moderate LC-50 (50% equity) or Conservative-LC-25 (25% equity) as per his/her risk appetite.
• Active Choice: Guardian actively decides allocation of funds across Equity (upto 75%), Corporate Debt (upto 100%), Government Securities (upto 100%) and Alternate Assets (5%).

Pension Fund Selection: The guardian can choose any one of the Pension Fund Manager registered with PFRDA.

Points to Consider Before Investing

Positives ( Pros)

• The child will get an edge over retirement, as he can be pension-ready. Investing in NPS is far better than investing in other pension plans from insurance companies ( since these plans have high inbuilt charges that deeply impact the return).
• It can be a good scheme for affluent investors who have lots of spare money to invest for their bright future.
• But at least it is far better than investing in insurance plans for investment purposes.

Negatives ( Cons)

I have many points to bring to your notice before considering the NPS Child Scheme :

1. Parents’ Obligation/Duty towards Children – A parent must look after their kids, fund their education and help them achieve heights. But Planning for child’s pension looks weird. Leave so much that your children can do anything with it, but do not leave this much that they cannot do anything.
2. Plan your Retirement First – Before planning the pension of a child, it’s better to focus on your retirement first.
3. Plan Your children’s Education First– Please do not consider a NPS Vatsalya a substitute for child’s education funds, since you can withdraw only upto 25% of your deposited money ( without interest).
4. Limited Equity Exposure-Even if you wish to make them pension-ready, there is a limited exposure to equity which will in turn reduce the returns.
5. Compulsory Annuity – Whenever the child takes retirement, there is compulsory purchase of an annuity plan that provides a low interest rate on the pension fund itself. This amount may not be sufficient at that time.
6. Pension received will be taxed– The pension at the age 60, or whenever taken will be taxed as per slab rate.
7. Full Withdrawal – At no point in life you or your child can withdraw money fully and close the scheme. Once entered, it is always entered.( with limited exit & withdrawal rules).
8. No Control– You do not have any control over your investments. You can only choose your fund manager but not where you can invest.

Conclusion

NPS Vatsalya can be a good investment scheme for affluent people who wish to secure their child’s retirement. But practically speaking this children’s retirement scheme is not for middle-class people who struggle to fund their own retirement. NPS child scheme may also hold good for those who buy insurance policies for the benefit of kids’ retirement.

Let’s explore more details about UPS Pension Scheme, outlining its key features, eligibility criteria, benefits, and how government employees can maximise their retirement benefits through this scheme.

What is the new UPS Pension Scheme?

 The New UPS Pension Scheme is a defined Benefit Pension Plan, where the pension amount is calculated based on the employee’s salary and length of service. This ensures that retirees receive a guaranteed pension throughout their retirement.

The salient features of the UPS are:

Assured pension

The employees who have served for 25 years or more will get 50% of the average basic pay drawn over the last 12 months just before superannuation.

Those who served a minimum of 10 years will get proportionate pension money.

Assured Family Pension

The family will get assured 60% pension amount of the employee. For this purpose, the last drawn pension ( just before the demise) of the employee will be considered.

Suppose Mr Bestii was getting a pension of Rs 1 lac at the time of his demise. His family will get Rs 60000 as a Family pension.

Assured Minimum Pension:

The employees who have served for at least 10 years of service, will get an Assured minimum pension of Rs.10,000 per month upon retirement.

Inflation indexation

With time the pension amount will increase as per inflation indexation. The Assured Pension, Assured Family pension and assured minimum pension will be increased based on inflation indexation.

Dearness Relief

Just like serving employees, retirees under the Unified Pension Scheme will receive Dearness Relief based on the All India Consumer Price Index for Industrial Workers (AICPI-IW). 

Lumpsum Payment at Retirement

The Central Govt. of India employees will also get a lump sum payment and Gratuity at the time of Retirement. This lump sum payment will be 1/10th of the employee’s monthly emoluments (including pay and Dearness Allowance) as of the date of retirement, for every completed six months of service.

This lump sum payment will not reduce the quantum of the assured pension.

What Prime Minister Narendra Modi said

“We are proud of the hard work of all government employees who contribute significantly to national progress. The Unified Pension Scheme ensures dignity and financial security for government employees, aligning with our commitment to their well-being and a secure future,” Prime Minister Narendra Modi said in a post on X

Who will Contribute to the UPS Pension Scheme?

Both Employees and the Govt will contribute to the UPS Pension Scheme. The employee will contribute 10% of their salary with the government matching this contribution.

Conclusion

The UPS Pension Scheme is a cornerstone of the Central Government’s commitment to the welfare of its employees. With its unique features, UPS scheme provides a robust safety net for central government employees, ensuring they enjoy a secure and comfortable retirement.

For central government employees, understanding the UPS Pension Scheme is crucial to making informed decisions that maximize their post-retirement income and overall financial well-being.

Although, the rules are not specified. But still, let’s understand it with the available information.

What is the NPS Vatsalya Scheme?

Finance Minister Nirmala Sitharaman has introduced NPS Vatsalya in Budget 2024.  NPS Vatsalya allows parents to contribute on behalf of their children till they turn 18. This NPS scheme for minors promises a healthy future by planning their retirement fund.

Under Vatsalya yojana, Parents can start an NPS account for their children and pay on monthly/ yearly or other modes. 

When the child turns major (18 years), the NPS Vatsalya scheme will transform into a standard NPS account.

From age 18  the child can manage it himself/herself. Parents and guardians, regardless of their citizenship status, can open an NPS Vatsalya account for their underage children.

How does NPS Vatsalya work?

Let’s understand it using the example of Bestii Singh.

Suppose Bestii Singh, opens NPS Vatsalya for his minor child Anuj, aged 1 year. He starts contributing Rs 5000 per month till he turns major.

Anuj can operate NPS Vatsalya himself from 18. But earning usually starts from age 23-25 only ( assumed). Again Mr. Bestii will have to contribute for another 5-6 years.

As soon as Anuj Starts earning, he may contribute to the scheme.

As per current NPS rules, he is eligible to continue contributing to NPS until retirement, or he may make a premature withdrawal and receive a pension with 80% of the money.

He also has the option to withdraw money partially or else contribute NPS till retirement.

Let’s further evaluate this.

Suppose the NPS Vatsalya scheme generates a 10% return yearly. NPS account has been contributed for 59 years ( 5000 monthly contributions). The corpus will be around 17.44 Crore.

As per current NPS rules, Anuj can withdraw 60% lumpsum and from 40% money pension will start.

NPS Vatsalya Scheme – Should you invest?

NPS Vatsalya scheme is a very long-term perspective from an investment point of view. As per my understanding, it is an additional burden on the parents’ shoulders it’s as a parent.

We must support the child for his education and other needs. But Planning a child’s retirement looks daunting.

Even if you are willing to pass good wealth for child’s future, it is best to contribute to other investment schemes such as Index funds, Aggressive mutual funds, and Moderate return mutual funds. It is best if you insure yourself well, so that his future can be taken care of, rather than invest and lock the money for future use.

NPS Vatsalya will be like having low liquidity on your part. It is best to invest under the guidance of a Financial Consultant.

( The post will be updated after Govt. adds more information for NPS Vatsalya)

Read more about NPS

Here is the complete guide for all your NPS Tier 1 tax benefits.

NPS Contribution tax Benefit to employees on Self-Contribution

Employees contributing to NPS are eligible for the following tax benefits on their contribution:

1. Tax deduction up to 10% of salary (Basic + DA) under section 80 CCD(1) within the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.
2. NPS Additional Tax benefit (deduction) up to ₹50,000 under section 80 CCD(1B) over and above the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.

Tax benefits to employees on Employer’s contribution

The total NPS contribution consists of two parts- The employee’s contribution and the employer’s contribution. We have already discussed Employee contribution above.

However, the Employer contribution is also eligible for a tax deduction of up to 10% of salary (Basic + DA) (14% if such contribution is made by the Central Government) contributed by the employer under Section 80 CCD(2) over the limit of Rs. 1.50 lakh provided under section 80 CCE.

National pension Scheme –Tax benefits to self-employed

Individuals who are self-employed and contributing to NPS are eligible for the following tax benefits on their contribution

1. Tax deduction up to 20 % of gross income under section 80 CCD (1) within the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.
2. Tax deduction up to ₹50,000 under section 80 CCD(1B) over and above the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.

Tax benefits on partial withdrawal from NPS account

Earlier partial withdrawal from NPS was not allowed. But now an NPS subscriber can make partial withdrawals from NPS (up to 3 times in the entire duration of NPS).

The following are the conditions of partial Withdrawal:

1. Subscribers should be in NPS at least for 3 years
2. Withdrawal amount will not exceed 25% of the contributions made by the Subscriber
3. The withdrawal can happen a maximum of three times during the entire tenure of subscription.
4. Withdrawal is allowed only against the specified reasons, for example;
   • Higher education of children
   • Marriage of children
   • Purchase or construction of a residential house or flat in your name or a joint name with your legally wedded spouse
   • Specified illnesses that involve hospitalization and treatment, either of yourself or your legally wedded spouse, your children (including those legally adopted), or dependent parents
   • Meeting your medical and incidental expenses arising out of a disability or incapacitation suffered
   • Meeting your expenses for skill development or re-skilling, or any other self-development activities, as permitted by PFRDA
   • Establishment of your venture or start-up, as permitted under PFRDA guidelines

The specified Illnesses for NPS Partial withdrawal are as follows:

• Cancer
• Primary pulmonary arterial hypertension
• Kidney failure (end-stage renal failure)
• Multiple sclerosis
• Major organ transplant
• Coronary artery bypass graft
• Aorta graft surgery
• Heart valve surgery
• Stroke
• Myocardial infarction
• Coma
• Total blindness
• Paralysis
• Accident of a serious or life-threatening nature

Partial Withdrawal NPS is eligible for tax exemption on the amount withdrawn up to 25% of the self-contribution.

Tax benefit on purchase of Annuity

Upon Retirement ( at age 60) /Superannuation, one can withdraw up to 60% of their total NPS accumulated corpus. The remaining 40% should be used for annuity purchases.

This NPS 40% corpus ( compulsory annuity purchase from 40% corpus) is eligible for tax exemption on the purchase of an annuity under section 80CCD(5).

However, the subsequent income received from the annuity is subject to tax under section 80CCD(3).

Tax benefit on lump sum withdrawal at age 60

The lumpsum withdrawal of 60% (of accumulated pension wealth) upon attaining the age of 60 or superannuation under section 10(12A) is eligible for tax exemption.

Tax Benefits to Corporates/ Employers

Employer contribution towards the NPS account of employees also gets tax deductions for Employers.

The amount is Eligible for a tax deduction on the amount contributed as employer’s contribution towards the NPS account of employees, up to 10% of the salary (Basic + DA) of the employer’s contribution as ‘Business Expense’ from the Profit & Loss Account under section 36(1)(iv)(a).

The tax provisions referred are from Income Tax Act, 1961

Read more about NPS

With small and steady contributions, one can make investment via monthly SIP and in retirement years take monthly pension ( payout via Systematic Withdrawal Plans aka SWP). 

Under this option, investors have the option to select the SIP and SWP schemes, the SIP tenure, and the specified SWP amount. It can make investors’ futures stress-free by assisting them in systematically accomplishing their goals.

What is Freedom SIP?

Freedom SIP is basically a Goal based Investment solution ( income in retirement years) which aims to provide regular income or cash flow in retirement years.

This is made possible via combining the two mutual fund investing options i.e. SIP and SWP.

In simple words, Start a Freedom SIP for set number of years and after completion of SIP period, take Monthly income till 2099

read more –Difference Between SIP, SWP And STP

Bestii Singh journey to ICICI Prudential Freedom SIP

Bestii Singh, 26, wants to safeguard his future. He also wants to get a desired income month on month for all his life.

He came to know about ICICI Prudential Freedom SIP. Eventually he takes the leap and start his SIP of Rs 10000 on monthly basis for 30 years i.e. till age 56.

Now after his age 56, he will get a monthly payout of 1.20 lac on monthly basis from his freedom SIP.

The payout amount depends on your investment duration and investment amount.

How does it work?

Freedom SIP is a simple combination of accumulation and distribution i.e. accumulate via small monthly contribution and distribution via systematically withdrawing the money via SWP.

Steps to start ICICI PRUDENTIAL FREEDOM SIP

1. Choose source scheme
2. Choose target Scheme
3. Choose your SIP amount
4. Choose investment duration 8/10/12/15/20/25/30 years
5. Choose your SWP amount
6. Get, set Go

How to start Freedom SIP

• SIP registration ( source scheme)for chosen duration
• Post SIP period, the accumulated money is transferred to the selected target scheme.
• ( If source and target scheme are same, there will be no need of switch)
• Post switch, SWP will be activated for an amount mentioned by the investor in the form.

This facility encourages investors to invest regularly in a disciplined manner through Systematic Investment Planning (SIP) and lets them enjoy the benefits of regular money via Systematic Withdrawal Plan (SWP) post completion of SIP period.

Freedom SIP enables investors to initially invest through SIP in a scheme (“Source Scheme”)
for a pre-defined tenure. Investors can choose from the given SIP tenures which could be either 8 years, 10 years, 12 years, 15 years, 20 years, 25 years or 30 years.

Post completion of pre-defined tenure, the investments would be switched to another scheme (“Target Scheme”) chosen by the Investor.

Investors have the freedom to choose their desired SWP amount. If they do not mention the SWP amount, they will receive the default SWP amount, which would vary based on the SIP amount and the SIP tenure selected by them.

Read more –SIP Pros & Cons – What YOU Must Know?

Why choose ICICI Prudential Freedom SIP?

•  Readymade goal based investing solution
• Inculcate the habit of long term investing
• Freedom to choose tenure from 8,10,12,15,20,25 Or 30 years.
• Freedom to choose from wide range of schemes based on one’s need and risk appetite

What are the benefits of freedom sip

Readymade goal based investing solution – Many investors who do not want to opt for any kind of Goal based investment Planning or Financial planning, can opt for an readymade Retirement Solution in retirement years. Thus its a easy method to start a SIP and take income in later years.

Inculcate the habit of long term investing- Freedom SIP has a goal attached to it and therefore it gives a reason to remain invested and continue the SIP. Its always best to invest for a goal than random investment.

Freedom to choose tenure – One can choose investment tenure based oh his/her requirement, age etc.

Freedom to choose from a wide range of schemes – the investor can choose a scheme based on his/her risk profile and take income in later years.

 Is freedom SIP tax free 

No, freedom SIP is not tax free in nature. However, the investor does not need to give any tax in the depositing year, but definitely while taking income tax may be involved.

SIP Taxation-How SIPs Are Taxed

what is the minimum amount of freedom sip 

Minimum Rs. 100/500 & in multiples of Re. 1 (Minimum number of installments – 6)

Quarterly: Minimum Rs. 5000/- & in multiples of Re. 1 (Minimum number of instalments – 4).

What is the difference between SIP and freedom SIP

SIP Refers to two systematic investment plan wherein you invest on a monthly basis and you withdraw your money at maturity or whenever you want.

Freedom SIP refers to a combination of two schemes SIP and SWP, wherein you start a monthly contribution (monthly systematic investment plan) in a source scheme for a predefined number of years.

After completion of this period, the money will be transferred in the target scheme from where your monthly income will start.

what is free freedom SIP fund investment

The source scheme is the MF scheme in which you can start your monthly SIP.

The Target Scheme is the MF Scheme from which you can take monthly payout through SWP.

Please note : In case, the investor does not fill in any SWP target scheme the default scheme shall be ICICI Prudential Balanced Advantage Fund.

In case one choose ICICI Prudential Retirement Fund or ELSS fund then the target scheme are mentioned below:

Also know : Top 3 Easy Ways To Cancel SIP In A Click

Step Up SIP Can Make You Millionaire- Know How?

ICICI Prudential Freedom SIP Form

ICICI freedom SIP disadvantages 

Although ICICI freedom SIP is a readymade retirement solution, but it also has some disadvantages too.

• You get bound to a particular scheme – Equity market is dynamic and many changes may happen in due course of investment. The return of best scheme may not be that good tomorrow. But once you choose the scheme and tenure, it may become difficult to change the scheme.
• In contrast, what if the scheme performance detriorates with time.
• Not get the real Picture- Although income of 1.20 lac looks pretty awesome today but money value depriciates with time. Therefore one can strive for higher SIP amount today only.

Retirement solution from SBI MF – SBI Mitra SIP – A Powerful Tool To Get Monthly Income

Read more – LIC Or SIP Or Mutual Funds- Which Is Better?

SIP Or Mutual Fund – What Is The Difference & Example

National Pension System (NPS) Withdrawal Rules 2023

Currently there are 5 conditions under which one can withdraw NPS.

• Normal Exit ( at age 60 or beyond)/Superannuation
• Premature Exit / Voluntary retirement ( Exit before age 60 or superannuation)
• Unfortunate death before age 60
• Exit & withdrawal due to disability and in-capacitation
• Deferment under NPS

Normal Exit ( at age 60 or beyond)/Superannuation

Govt. Employees

Non Govt. Sector

NPS Premature Exit Rules/ Voluntary retirement ( Exit before age 60 or superannuation)

Govt Employees

Non Govt Sector

NPS Withdrawal in case of Unfortunate death before age 60 /Superannuation

Govt. Employees

Non Govt Sector

Continuation NPS contribution till Age 75

Govt Employees

Non Govt Sector

Deferment of NPS pension

Govt. or non Govt. sector subscriber can choose to defer( delay- do not take money) the withdrawal till age 75. Various deferment options are available under this.

• Defer annuity (pension) only ( can defer for 3 years only)
• Defer Lump sum only ( can defer for 10 years only)
• Defer both
• One can opt to take lumpsum amount in phased manner ( up to 10 instalments) till age 70

For instance Mr. Bestii at the age of 60 decides to defer his lump sum payment( 60% money) and steadily start taking the pension from the beginning itself.

NPS Exit & withdrawal due to disability and in-capacitation

If Subscriber is physically incapacitated or has suffered a bodily disability leading to his incapability to continue NPS subject to the Subscriber submitting a disability certificate from a Government surgeon or Doctor (treating such disability or invalidation of Subscriber) stating the nature and extent of disability and also certifying that:

1. the affected Subscriber shall not be in a position to perform his regular duties and there is a real possibility of the affected Subscriber, being not able to work for the remaining period of his life.; and
2. Percentage of disability is more than 75 % in the opinion of such Government surgeon or doctor (treating such disability or invalidation of Subscriber).”

It means such cases shall be handled similarly to exit cases at the age of superannuation or at the age of 60 years.

Govt. Employees

Non Govt. Sector

What is NPS Systematic Lump Sum Withdrawal ( SLW)?

Under NPS Systematic Lump Sum Withdrawal ( SLW) option, the subscriber can withdraw lump sum amount (after age 60) in a systematic way. The SLW option is explained under deferment of NPS option.

NPS Systematic Lump Sum Withdrawal ( SLW) is valid for NPS Tier 1 only. Once subscriber opt NPS SLW, further contribution to NPS is not available.

Under Systematic Lump Sum Withdrawal ( SLW), subscriber can withdraw the money (60% of corpus) in one shot or on annual basis also. In case of annual withdrawal, the withdrawal request has to be submitted on each withdrawal.

Mr. Bestii Singh,60, opts for NPS Systematic Lump Sum Withdrawal ( SLW). Let’s assume his 60% money amounting Rs. 1 Cr. Now at age 60 Bestii Singh can withdraw entire 1 Cr in one shot or in instalments. Here, in case of annual instalment he has to make NPS withdrawal request every year.

PFRDA proposes to pay lump sum systematically ( On one-time request only)on a periodical basis i.e. monthly, quarterly, half-yearly, or annually for a period till age 75 in an automated manner. This may apply with both Tier I and II. But under SLW, Partial withdrawal won’t be allowed.

Subscriber can opt SLW any point of time in case of Tier II account, even before age 60.

Read more about National pension Scheme

 All Indian residents, state/central government employees, private employees and self-employed between the ages of 18 to 60 can subscribe to NPS.

Read more about NPS in detail

National Pension Scheme(NPS)- All You Need To Know From Entry To Exit Rules

Benefits of NPS

• NPS offer both equity and debt exposure in a single investment. Therefore it offers balanced returns.
• It is a long-term saving option with a safe and (regulated )market-based return for retirement planning. 
• National Pension Scheme is governed by the Pension Fund Regulatory and Development Authority (PFRDA). Thus NPS is well regulated and safer comparitively.
•  People get regular income along with a lump sum payment when they reach retirement age, enabling them to enjoy a stress-free retirement.
• A yearly minimum investment of Rs. 1,000 is required.

How To Choose The Best NPS Fund Manager

PPF Vs NPS- Which Is Better For Retirement?

9 Super Easy Steps To Retirement Planning

What is the Benefits of NPS?

• Disciplined Investment – Your money is locked in and placed aside until you turn 60 in order to secure post-retirement funding.
• You have to contribute every year till retirement age.  The minimum yearly investment of Rs.1000 is required.
• Cost-effective – the Pension scheme subscription charges are very low and it offers larger returns. The compounding of return allows you to generate sizable gains after retirement, despite the initial investment possibly being low.

• Better Alternative – In comparison to PPF, FD, Pension Plans, it offers better returns. Since a portion of the NPS is invested in stocks, it may have the potential to provide higher returns than other risky and fixed income products. That is why it does not provide guaranteed returns.
• Market Based Returns – It’s returns vary as per the asset allocation amongst Equity (E), Corporate Bonds (C), Government Securities (G) and Alternate Investment Funds (A) .Returns are directly linked to the market as per the market returns.
• Professionally Managed – The pension funds are invested and managed by the well qualified pension fund managers. Professional management assures better profits on retirement. 
• Passive Income – Since one has to buy a mandatory annuity plan, which provides a lifetime income source.Thus, provide regular flow of money, when you most need financial support.

• NPS benefits on Retirement– NPS is long-term investment plan but still it provides withdrawal option to the subscriber.There is a minimum lock-in period of 10 years for All Citizens/Corporates. At the time of retirement one can withdraw up to 60% of accumulated corpus as tax-free amount and invest the 40% for regular cash flow and take advantage of a monthly pension.

• NPS Benefits in income Tax – You can take additional deduction for Rs.50000 under section 80CCD(1B) and save additional tax of Rs 15600. This amount is over and above tax deduction U/S 80 C for Rs.150000.
• Thus you can invest up to ₹2,00,000 in order to save ₹62,400 in taxes.

NPS Calculator

To calculate pension please visit link

http://www.npstrust.org.in/content/pe…

To watch NPS calculation video on Youtube

https://www.youtube.com/watch?v=ARe0Eqd6XMk&t=41s

NPS withdrawal rules

Please visit the link Latest NPS Withdrawal Rules 2022- Govt. & Corporates

Step by step process to withdraw money from NPS

Please watch the video : step by step process to withdraw money from NPS

NPS Annuity Options

This article will bring out the best of each scheme.

Both PMVVY & Senior citizen saving scheme both are 100% safe govt. scheme schemes. Senior citizen aged 60 or above can invest in PMVVY and SCSS .The maximum investment limit in each scheme is Rs 15 lac.

 These schemes offer various flexibilities to the senior citizens in India. Both superior schemes offer regular income/pension to senior citizens but little difference in features and benefits. 

Read more about Senior Citizen Saving Scheme

PMVVY Vs Senior Citizen Saving Scheme- Which is better investment for you?

There are many basic difference between PMVVY and SCSS. Let’s discuss each point one by one. Later we will also discuss the key difference.

Who is offering the scheme?

• PMVVY: This scheme is offered by LIC of India. One can purchase it online and offline from LIC of India.
• SCSS: It is offered by post offices, few private banks, and many other PSU banks. You can invest money either offline mode or online, as you wish.

Please note that PMVVY is available for subscription till March 2023 only.

Read more:

How To Open PMVVY Scheme Online

Read about Budget 2023 highlights important for you.

Who can purchase

• PMVVY: Any Indian Citizen who is age 60 and above can purchase the scheme.
• SCSS   : Any Indian Citizen who is age 60 and above can purchase the scheme.
• Special cases in case of SCSS:
• An investor Who has attained the age of 55 years or more but less than 60 years, and who has retired on superannuation or otherwise (Account has to be opened by such individual within one month of the date of receipt of the retirement benefits).
• The retired personnel of Defence Services (excluding Civilian Defence Employees) shall be eligible to open an account under this Scheme on attaining the age of fifty years, subject to the fulfilment of other specified conditions.
• Source : https://www.icicibank.com/Personal-Banking/investments/senior-citizens/eligibility.page?#toptitle

Duration of Investment PMVVY Vs Senior Citizen Saving Scheme(SCSS)

• PMVVY : Investment time is for 10 years. Rate of interest is fixed (at the time of buying) for 10 long years. 
• It will not change for you for 10 long years.
• However, the interest rate may change each time you purchase a new scheme.
• SCSS: Investment time is for 5 years. Whatever rate is fixed at the time of purchase will remain unchanged during 5 long years.

Amount of deposit

• PMVVY: You can deposit Rs 15 lac in one name.
• SCSS:    You can deposit Rs. 15  lac , now increased to 30 lac ( as per budget 2023) in one name.

Tax Benefit U/S 80 C:

• PMVVY: You will not get any deduction U/S 80 C in PMVVY.
• SCSS: You can claim a deduction of Rs 1.5 lac in the deposition year U/S 80 C in SCSS.

Mode of Pension:

• PMVVY: You can choose between monthly, quarterly, half-yearly or yearly mode. You can choose frequency as per your convenience.

• SCSS: Only quarterly mode is available in senior citizen saving scheme. 
• Pension dates are 31 March, 30 September, 30 June, 31 December. If you have deposited prior to three months, even then dates are fixed for the pension.

Can I take Loan?

• PMVVY: You can take a loan after completion of 3 years.

 You can take a loan of 75% amount of the initial purchase price. The loan is available on the money you have paid initially to buy the policy.                 

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• SCSS:  No such facility is available in SCSS.

Can I Surrender and take money back

• PMVVY: In case of critical illness of you or spouse,you can surrender and take money back, but at 2% discount. 
• If you had deposited Rs 10 lakh initially you will be able to get 9.8 lakh.

• SCSS:  No special condition to withdraw but the different amount will be released on the basis of your invested time:

After 1 year: 98.5% of your money (initially deposited amount) After 2 Year: 99% of your money (initially deposited amount).

PMVVY Vs SCSS – Interest rate.

PMVVY Vs SCSS – Pension Amount

PMVVY Vs Senior Citizen Saving Scheme – Taxation

• tax calculation is only for illustration purposes. Please consult with your Accountant/Financial Advisor before jumping to any conclusion.

PMVVY Disadvantages

Although PMVVY is a golden scheme to invest in. But every coin has a flip side too.

• Limited Access to Money : After purchasing PMVVY, you has limited access your money.
• Premature Exit: Premature exit is allowed during policy term under exceptional circumstances like Critical/Terminal illness of self or spouse . Surrender Value payable in such cases is 98% of the Purchase Price.
• Fix Interest Rate: Since your money is locked in PMVVY, if you find a better option to earn interest, you would miss it.
• Limited Investment: One can deposit only Rs 15 lac in one name.
• Low Returns: Since returns are not adjusted for inflation, you can see minimal returns on your investment after a few years.
• Taxation: You do not get any tax deduction U/S 80 C and income earned is also taxable in nature.
• Available till March 2023: PMVVY is available for subscription till March 2023 only.

Frequently asked questions:

Can a Senior Citizen invest in both SCSS and PMVVY?

Yes, Senior Citizen can open both SCSS and PMMVY together. Thus one can invest maximum of 30 lac in SCSS and 15 lac in PMVVY also.

If husband and wife both want to deposit in the scheme?

Since you can purchase SCSS and PMVVY together. You can deposit Rs 45 lakh in both schemes in one name.  

Therefore, you can deposit Rs 30 lakh in SCSS and 15 lac in PMVVY and your wife/husband can also deposit Rs 45 lakh. In total you both can deposit a maximum of Rs 90 lakh in both schemes in your name and your spouse name. 

How many accounts can be opened?

You can open any number of account but the money deposition limit is Rs 15 lac in PMVVY and 30 lac in SCSS.

What I will get at maturity?

You will get maturity amount (purchase price i.e. the money you had deposited initially)along with remaining interest. 

If spouse age is less than 60 years, then can money be deposited in his/her name?

No, minimum age should be 60, but can be deposited if one has retired on superannuation or from defense services in case of SCSS.  In PMVVY, there is no such relaxation. 

Is interest fixed in SCSS and PMVVY or will it keep on changing with change in interest rate announced?

Interest rate will be fixed at the time of purchase only. Interest rate will not change if you continue the same scheme until its duration come to an end. 

Will interest rate change if I purchase it again on maturity?

Yes, at that time, whatever prevailing rate of interest will be there, you will get that rate of interest. 

Will TDS be deducted from PMVVY and SCSS?

PMVVY :  TDS is not deducted from the interest amount. You are liable to pay tax yourself. The interest amount will be added to your income and taxed as per your income tax slab rate. SCSS: TDS is deducted if interest amount is more than Rs 50000 in a Financial Year. Interest amount from bank, FD and post office scheme will be taken into account for Rs 50000 limit. 10% TDS is deducted.

Do I have to pay tax, if I have no income other than PMVVY and SCSS?

As combined together interest will not be more than Rs 2.5 lakh, which is below basic exemption amount, so no tax will be deducted from your part. But you should file zero tax even if your income is well below the threshold amount. 

In case of SCSS, for how many years I will get tax benefit u/s 80 C?

SCSS offers tax deduction u/s 80 C in the deposition year only and that too of Rs 1.5 lakh only. Say if you have deposited in 2018-19, then you will get an exemption for 2018-19 only and not after it. 

Do I need to file ITR?

Yes, you should. 

Do I get a tax benefit in extension year in the case of SCSS?

You do not get tax benefit in SCSS for the old amount, however, you get a tax deduction if you deposit a new amount in extension years. 

If money withdrawn prematurely, what about tax benefit?

Principal amount and interest will be added to your income and taxed as per your income tax slab rate. 

Is my money safe in PMVVY and SCSS?

Yes, absolutely both the scheme is govt. schemes, so no worries. 

• If Money withdrawn in SCSS after 1 year or later than 1.5%/1% deduction is from interest income or investment amount?

The penalty of 1.5%/1% will be deducted from the investment amount.

What is the last date to purchase PMVVY?

The scheme is open for purchase till 31st March 2023.

Which of all banks SCSS is available?

Given below is the list of banks that of the scheme:

• ICICI Bank
• Vijaya Bank
• Union Bank Of India
• UCO Bank
• Syndicate Bank
• Indian Bank
• Punjab National Bank
• IDBI Bank
• Indian Overseas Bank
• State Bank Of India
• Dena Bank
• Central Bank of India
• Canara Bank
• Bank of India
• Bank of Baroda
• Bank of Maharashtra
• Allahabad Bank

Can I change the pension option later in the case of PMVVY?

No, you have to choose the option in the initial stage only. Once chosen options can not be changed or altered. 

Is it good to invest in PMVVY?

PMVVY is a safe and secure scheme to invest in. One can purchase PMVVY from LIC of India either offline or online. In this low return era from fixed income products such as FD, PMVVY is offering 7.4% interest rate.

Additionally you get money back after completion of 10 years.

Can I invest 15 lac each in SCSS and PMVVY?

One can invest 15 lac each in PMVVY and Senior citizen Saving Scheme. But at any point of time, the investment amount should not exceed 15 lac. For example if you invested Rs 15 lac this year then next year you cannot invest 15 lac again in the scheme.

Please note as per budget 2023, Now onwards one can invest up to 30 lac in senior citizen saving scheme.

Now in another instance, if you deposit 5 lac this year then next year or any other time you can deposit 10 lac.

Conclusion: 

PMVVY and Senior citizen Saving Scheme both are very good schemes to invest for regular income. Before investing one should ensure not to withdraw the money before the duration of scheme.

From a taxation and liquidity point of view SCSS scores over PMVVY. You get tax exemption of 1.5 lac U/S 80 C in case of SCSS, while there is not tax deduction U/S 80 C in PMVVY.

Additionally interest income upto 50k exempt in case of SCSS. While the entire pension amount is taxable in nature. The rate of interest remain same for entire duration.

What is pension plan?

Pension plans are are a kind of investment plan which help you to accumulate some part of your savings for long term period, so that you can have a secured financial future. The pension plans offer the dual benefit of a life cover along with saving money saving element.

Usually all Pension plan provide a guaranteed pension for a fixed tenure or for entire life( The pension payment duration depends on the option chosen by you).

Here you choose to pay a fixed sum for fixed number of years. Thus you accumulate certain corpus at the end of premium paying term. This accumulated corpus is given back to you in installments ( may be yearly, monthly or any other mode).

Types Pension plans in India

Deferred Annuity

The deferred annuity plan are the plans in which you choose to defer ( only contribute and promise to take pension after fixed number of years) the pension or annuity payments for few years and choose to pay in one installment or in multiple installments.

Here you pay for 10,15, 20 years 30 years ( or any other duration) and after completion of this period you start taking pension from this plan.

Benefit of deferred annuity plan

• You get tax deduction under section 80C on your premium payment up to 1.5 lakh.
• Pay a periodic amount or a lumpsum amount and after few years you start getting pension from your corpus.
• Few plans offer life cover too.

Drawbacks of Deferred Annuity Plans

• The pension amount is fully taxable in your hand. The pension amount is taxable under the head, income from other sources.
• If you choose to close the policy and withdraw entire amount then two third amount is taxable.
• There is no option to withdraw entire amount during the entire duration and thus liquidity is a big problem with these kind of the plans.

Immediate annuity –

In immediate annuity plans, you pay a lump sum amount and start getting pension on immediate basis. For instance, you deposit a lump sum amount and you will start getting the pension from the next month, next year, next quarter, or after completion of 6 months. You can choose Pension payment mode.

Read more : https://bestinvestindia.com/lic-saral-pension-yojana-2021-details/

https://bestinvestindia.com/how-to-open-pmvvy-scheme-online/

https://bestinvestindia.com/pmvvy-vs-senior-citizen-saving-scheme/

There are multiple payout options available in these plans. Your pension amount depends on the payout option you have chosen. To understand your payout options please watch the video.

The pension amount depends on the amount you paid and the option you have chosen for pension. Additionally yearly payout is bit higher than monthly or other mode payouts.

The advantages and disadvantages of immediate annuity plans are almost same as of deferred annuity plans.

Here also, you get tax exemption of Rs 1.5 lakh and income is taxable under the head income from other sources.

The biggest drawback of these plans is liquidity. You cannot withdraw your money in between of the policy except in special cases such as terminal illness of a family member.

In case of unfortunate death of the subscriber, the payment amount is returned back to the nominee.

Annuity certain

In annuity certain option, Pension payment is given for a certain period irrespective of the subscriber is alive or not.

For example,

Mr. A choose annuity Certain for 10 years. Than he will get annuity payments for full 10 years and thereafter also.

In case Mr. A dies after 5 year, even than the annuity will be paid for 10 years and thereafter annuity payment will be stopped.

With cover or without cover pension plans

As the name suggests, with cover plans offer a life insurance coverage along with the Pension payment. These deferred annuity plans provide life insurance cover.

Although life cover amount is not very high because the higher amount of the premium is used towards the growth of the money.

In case of unfortunate death of the subscriber the life cover is given to the nominee.

While in case of without cover pension plans, the fund value is given to the nominee.

Guaranteed Period Annuity

In guaranteed period annuity plans, the the pension is paid for the guaranteed period say, for 10/ 20 /30 or more number of years, irrespective of the subscriber is is alive or not

Life Annuity

In life annuity pension plans, you get pension all your life. The pension payment is stopped after you.

Read more about pension plan https://bestinvestindia.com/retirement-planning-steps/

National Pension Scheme

NPS (National Pension Scheme) is a Government of India Retirement Scheme launched  in 2009. 

NPS is a retirement scheme therefore you have to contribute in NPS till your retirement age i.e. till the age of 60. Thereafter you get pension for all your life.

 The amount of pension depends on the amount you utilize for annuity purpose and annuity option you choose while selecting annuity.

Who Can Invest in NPS

 Any Indian resident or NRI/OCI between age 18 years but below 70 (earlier it was 65), can  invest in NPS. The account will be closed if citizenship status of NRI changes from NRI to foreigner.

How to invest in NPS

There are two ways by which you can register and invest in NPS

1. Physical or Offline mode-

To open NPS account you have to deposit your documents with POP-SP (point of presence service provider).There is whole list of POP- SP which includes Bank, post office and other non financial institution.

Benefits of National Pension Scheme:

You can‘t withdraw your money therefore you are forced to save your money till retirement.

You do not have to judge much as only few players’ i.e. fund managers are available.

Even risk averse investor invest in NPS so may get better returns than traditional life insurance and other traditional investment options.

Drawbacks of National Pension Scheme:

Liquidity is the biggest issue with this plan. You can’t withdraw before your retirement on your wish. There should be a specified reason to withdraw money partially (cannot withdraw entire amount) from your NPS account.

Read more about NPS https://bestinvestindia.com/nps/

Pension( Retirement) Fund

Various mutual fund houses offer retirement solution pension funds. These funds invest your money in a predefined Pension Fund.

There are some restrictions on withdrawal of the fund. These Pension funds offer a better return as compared to traditional annuity/ pension plans but returns are subject to market risk.

Benefits of Retirement Plans:

You are forced to save for your retirement and most importantly you cannot withdraw your money before your retirement. Often liquidity is offered with high exit load.

Drawbacks of Retirement Plans:

Liquidity is a problem from the fund. If you require money than it become difficult to withdraw money. Furthermore high exit load makes it less favorable.

Whole Life ULIPs

Under this o pension plan, the money stays invested for the whole life of the insured and upon retirement, he/she can make partial withdrawals and get tax free income. Additional withdrawals are allowed whenever needed or whenever necessary.

Public Provident Fund :

PPF account is used extensively for saving tax in India. A large number of people invest in PPF keeping in mind their retirement. It is a very good investment avenue for risk averse investors who want steady and safe returns.

Benefits of PPF Account:

• Investor will stick to long term and have safe returns in hand.
• You can save tax along with investment of money.
• PPF Offers EEE taxation which means principal amount, interest and maturity amount are tax free.
• PPF account can be extended for block of 5 years therefore it can be maintained till and after retirement also.
• The best part is tax free maturity which makes it lucrative as compared to traditional pension plans where return is less and maturity is taxable.

Drawbacks of PPF

• PPF offers low inflation adjusted returns.
• Liquidity is a big issue with PPF account. You are allowed to withdraw partially under strict conditions.
• Interest rate keep on changing and this makes it difficult to predict future amount and pension also.

National Saving Certificate

Few people use NSC for their retirement pension. They keep on buying NSC each month for their entire life and keep on reinvesting till maturity. Thus they create retirement income from this.

Benefits of NSC:

NSC offers peace of mind to risk averse investor.

Drawbacks of NSC

• NSC also offers low inflation adjusted returns.
• Liquidity is a big issue with NSC. You are not allowed to withdraw partially .
• Interest rate keep on changing and this makes it difficult to predict future amount and pension also.
• Most importantly interest is taxable and to make interest tax free, you have to show it in your income and claim deduction under section 80C.

Conclusion:

If you wish to get good returns then there is nothing better than mutual funds and this is because of their flexibility, customizable plans, liquidity and high returns. Pension plans offered from life insurance companies have high in built charges and low returns.

Furthermore taxation of pension plan makes it even more costly.

 NPS is a good pension product but liquidity is a big constraint for investor. PPF and NSC’s are good for risk averse investor.

Additional resources

https://bestinvestindia.com/retirement-planning-steps/

https://bestinvestindia.com/how-to-plan-for-retirement-in-india/

How Mutual Fund SWP Works – What is SWP

Retirement Planning is an essential part of Financial Planning. A financial plan is a comprehensive plan which covers 360 degree of your investments and safety needs. Thus a Financial Plan covers Retirement planning too.

Retirement planning essentially calculates the future corpus required to generate inflation linked passive income (increasing annual income),how much you need to invest to accumulate that much corpus and if you are likely to meet your goal and let you know timely, if any shortfalls with your current investment.

It also makes additional provisions to reach the desired goal. A Retirement plan also takes rental income, your retirement benefits into account.

Why is retirement planning important?

Imagine your life today, what if you do not have adequate money to live a normal life. How miserable you feel at such a time.

Now, just relate such a situation in your post retirement days – when your earning capacity  is already depleted and you do not have adequate money.

I am sure you would not like to have such a situation in your life. Retirement Planning comes handy to solve such a problem in your life. It’s better to plan Retirement in time so that you do not feel the pain later in your life.

BestinvestIndia guides individuals to plan their Retirement. It creates a personalized Retirement Plan( to cater individualistic needs) and monitors it periodically to ensure the investments and future planning is right on track.

Does Retirement Planning same for everyone?

We all are unique individuals and have our own unique circumstances and different requirements. A regular income might be your only need but the other person may require to leave a legacy and the other person wants to have a world  tour after retirement. Therefore, Retirement Planning is à personalized plan and is prepared separately for each individual based on his or her requirements.

The reasons -why Retirement Planning is important

• Due to medical advancement there is an increase in average life expectancy and one needs to ensure that there is smooth inflow of money in your post retirement days .
• Do not want to depend on children for income needs
• We cannot work forever
• Increasing nuclear family culture
• Children move abroad or work other places
• Rising inflation
• Increase in lifestyle related expenses
• one source of income might be risky and you cannot rely on one income
• Increase in medical cost
• Increased health related cost such as extra help for supporting work.

How to start Retirement Planning

Early planning can help you to accumulate a sizeable Corpus without investing too much money.

Know the time left for Retirement

Only you know when you wish to retire. You want to retire at the common age of 60 or you want to retire early First step is to know the time left for your retirement.

Current monthly expenses

Know your current monthly expenses. You may reduce it to 80% for your post retirement days. Now calculate your inflated post retirement expenses. For instance if your current expenses are 50k than after 30 years your monthly expenses might increase to 3.30 lac.

Know Retirement proceeds from your job/business

Before calculating any amount you need to subtract the retirement corpus you may get from your employment.

Calculate your monthly and yearly investment amount

The final step is to calculate the SIP amount you need to start to accumulate retirement corpus. No worries if you cannot start with a high amount right now.

The key here is to at least start investment. You will get several chance in future also. You might increase your SIP investment periodically or on annual basis. You can also decide a certain amount and invest this amount on yearly or any time basis.

Review & Monitor

Periodical Review and monitoring is a must to meet your desired corpus. In other words you can say it is the lifeline of your entire planning. It is wise to review the plan on yearly basis at least.

Additional resources

• How to plan Retirement in India

https://bestinvestindia.com/how-to-plan-for-retirement-in-india/

7 Effective steps to Financial Independence Retire Early (FIRE)

https://bestinvestindia.com/7-effective-steps-to-financial-independence-retire-early-fire/

Financial Goals-Why you should set up financial goals

https://bestinvestindia.com/financial-goals/