NPS (National Pension Scheme) – A beginners Guide for Rules & Benefits

NPS is one of the most famous and talked about financial products today in our country and it’s quite a detailed and complex product. Today we are doing to talk about NPS in detail and I will try to teach you various aspects related to it.

National Pension Scheme is initiated by the government of India to make sure that in the coming future, more and more people have pensions to support their old age. The core focus of this scheme is to help investors save money for their retirement and also provide a regular income once they retire.

Since NPS was launched a few years back, there have been a number of changes and revisions to this scheme. So, this article will be the guide to NPS and answer to all your queries and confusions.

Flow chart on NPS process

What is NPS?

NPS is referred to as National Pension Scheme or New Pension Scheme. In this scheme, a subscriber can contribute to a pension fund that will be a mix of equity and debt investment. You have to invest in NPS till your retirement and the final corpus will depend on how the pension fund has performed over the years.

At retirement, you can withdraw part of the corpus as a lump sum and the balance will be used to provide you a regular pension till your death (and many other options are there).

Who can invest in NPS?

Earlier only government employees were allowed to invest in NPS, but now anyone (including NRIs) can open the NPS account. The below chart will simplify it.


Important Point: Entry age for NPS is above 18 years and below 65 years.

Who regulates NPS and manages money invested?

NPS is regulated by PFRDA – Pension Fund Regulatory & Development Authority. The money invested in NPS is managed by Pension Fund Managers (PFM). These are companies that are authorized and appointment by PFRDA to manage the wealth of investors. There are eight PFM right now.

  1. ICICI Prudential Pension Fund
  2. LIC Pension Fund
  3. Kotak Mahindra Pension Fund
  4. Reliance Capital Pension Fund
  5. SBI Pension Fund
  6. UTI Retirement Solutions Pension Fund
  7. HDFC Pension Management Company
  8. Birla Pension Fund

How can you invest in NPS?

The first step is to open an NPS account which can either be Physical or Online. First, let’s see the physical mode of the opening NPS account.

1. Physical Mode For this, you have to open an NPS account with POP – Point of Presence service providers. POPs are the banks or post office or other non-financial institutions. You can find your POP through this link

How to Find POP for NPS account opening

There you need to enter your country and location and you will get the list of POP-SPs near you. Select the Point of Presence (POP) where you have an existing relationship – either a savings / current account (in case of Bank) or any other account such as Demat/Mutual Fund/Insurance etc. (in case of non-Bank POPs).

Once you have searched your POP, you need to submit KYC forms along with the NPS registration form to POP and after registration, you with getting a PRAN i.e. Permanent Retirement Account Number. This is a 12 digit unique and portable number issued to all the subscribers.

Important Point: For Government employees, there are NODAL offices where they can get PRAN for the NPS account. Mostly they get it at the time of joining.

2. Online ModeThis mode is simpler than physical. You need to visit the e-NPS website and click on the National Pension Scheme. After clicking you will get 3 options i.e. registration, contribution, and tier-II activation. You need to select Registration.

how to open NPS account online

There you need to select appropriate options, enter your PAN and select your bank/POP. After clicking, continue you will get a registration form, fill the form online, attach the required scanned documents like PAN, address proof and scanned signature. Once it is done your PRAN will be generated and you can start investing in NPS.

Important Point: For online registration, it is mandatory to have a net banking account

What are the investment options in NPS?

Your money in NPS will be invested in 4 asset classes. Which are referred to as ECGA?

  1. E – Equity (High Risk – High Returns)
  2. C – Corporate Bonds (Moderate Risk – Moderate Returns)
  3. G – Government Bonds (Low Risk – Low Returns)
  4. A – Alternative assets like real estate investment trust (REITs) & infrastructural investment trusts (InvIT) (Very High Risk – Moderate Returns)

asset allocation in nps on basis of risk

The choice of asset allocation among these options above will be defined by the subscriber himself (Active mode) or it will be auto defined depending on the age of the subscriber (the older you get, more stable will be your investments). In both options, 75% is the maximum limit for investing in equities and for alternative assets class maximum contribution can be 5%.

What is Tier I and Tier II in NPS?

These are two account types of NPS accounts. Tier I is primary compulsory account for NPS also referred to as “Pension account” whereas Tier II is an optional account commonly referred to as “Investment account”.

Following chart will elaborate the difference between Tier 1 and Tier 2 NPS accounts-

NPS account type tier I tier II differences table

What are the tax benefits of NPS?

  • An employee’s own contribution in NPS will allow tax deduction under section 80CCD(1), up to 10% of salary plus dearness allowance and for self-employed individuals it is 20% of total income in a financial year, but this has to be within the overall ceiling of Rs. 1,50,000 of Section 80C to Section 80CCE of Income Tax Act.
  • An employer’s contribution up to 10% of salary plus dearness allowance is allowed as an exemption from tax under Sec. 80CCD(2)
  • Moreover, individuals can claim an additional deduction of up to Rs 50,000 under Section 80CCD (1B), which is in addition to Rs 1.5 lakh permitted under Section 80C.

The below-given table will simplify this to you –

Table showing Tax deductions on NPS contribution

What are NPS withdrawal rules (Tier I)?

Once an investor retires at 60 yrs., they will get 3 options

Option #1 – Exit from NPS at 60: If you want to exit from NPS at 60 years of age, you will get lump-sum 60% of your corpus and for remaining 40% an annuity will be generated with a PFRDA-registered insurance company(called as Annuity Service Providers) to provide monthly pension after your retirement. There are different annuity plans provided by a few insurance companies, you can choose any of them. And you also have the choice of increasing your annuity contribution (40% is mandatory). However, if the total corpus is 2 lakhs or less than it then the whole amount is given a lump sum.

Option #2 – Continue NPS with contribution till 70 yrs. : You can choose to continue contributing to NPS for more 10 years i.e. up till 70 years. This option is mostly chosen if you are earning after the age of 60. At the age of 70 withdrawal rules will be the same as the exit from NPS at 60.

Option #3 – Continue NPS with till 70 yrs., but without any further contribution: You can choose to not contribute to NPS and wait for your corpus to grow more by 10 years. This option is chosen mostly when you have monthly income flow from somewhere. Thereafter at the age of 70 withdrawal rules will be the same as an exit from NPS at 60. This option has to be exercised 15 days before the default date of withdrawal.

Important Point: Subscriber has to exercise continuation or deferment options 15 days before the date of retirement. Lump-sum withdrawal from NPS is tax-free. Whereas monthly pension will be taxable as per the tax slab of the subscriber.

Withdrawals in Tier II?

There is no limit on tier II withdrawals and all the withdrawals are taxable as per the slab rate of subscriber. It means Tier II works in the same way as Mutual Funds – Investing into Equity/Debt funds and has high Liquidity.

What is the NPS withdrawal procedure?

The withdrawal process starts 6 months before retirement so that pension will be started immediately after retirement. A subscriber can withdraw online or offline.

1. Online Process of pension withdrawal –

A claim ID is generated by a central record-keeping agency, six months before retirement, for which you will be notified via mail or letter. With the help of this ID, the subscriber can check and change his account details like address proof or bank account. Once the withdrawal claim is initiated, no details can be changed. Following is the process of initiating withdrawal –

Step#1 – Login to NPS using PRAN and Password

Step#2 – Go to Exit Withdrawal request and select initiate withdrawal

Step#3 – Select withdrawal type i.e. Exit at 60

Step#4 – Select ratio of Lump sum & Pension

Step#5 – Select One Annuity Service Provider

Step#6 – Verify all details and submit request form

Step#7 – Download request form

Step#8 – Sign and submit the request form to POP or Nodal Office

After 4 working days, lump sum amount will be credited to registered account. For pension all the details will be sent to ASP, once ASP processes all the details, you will start getting pension as per your selected annuity plan.

2. Offline Process of pension withdrawal –

In offline process withdrawal application is to be submitted at POP or NODAL office along with required documents. They will forward them to Central Record Keeping Agency (CRA) and NSDL. CRA will then register your request and issue an application form for withdrawal. Fill in all the details and describe the percentage of lump sum & annuity and select an annuity plan as per your needs. Once your request is processed you will receive the lump sum and pension as per plan selected.

What if I want to early withdraw i.e. before 60 years of age?

As NPS is a purely retirement solution product you should not exit before your age of 60. However, in some special circumstances, you can withdraw 25% in total of your own contribution in NPS. This you can do only after 3 years of investment and just 3 times in the entire tenure of NPS. The special circumstances are –

  • Children’s wedding or higher studies
  • Building/buying a house
  • Critical illness of self/family

Important Point: Partial withdrawal from NPS is tax-free.

What if I want to exit from NPS before 60 years of age?

After 3 years of NPS investment, you can opt for a premature exit from NPS and don’t want to contribute anymore, then you will receive 20% of your corpus as a lump sum and balance 80% will be mandatorily used for annuity fund. You can choose pension payment mode like monthly, half-yearly or yearly.

Important Point: In this case, the lump sum and pension you receive both will be taxable as per income tax slap.

What amount of Pension or annuity I will get?

An annuity is a fixed payment like pension that we get every month, half-yearly or yearly depending upon the chosen model. In NPS 40% of the corpus is invested as an annuity with annuity service providers i.e. PFRDA registered insurance companies.

While creating an annuity plan, the following details are required like,

  • The sector of employment (Government or Private)
  • Date of Birth
  • Gender
  • Marital status
  • Spouse’s Gender
  • Spouse’s Date of Birth
  • NPS corpus amount that you utilize for buying an annuity plan
  • Annuity Frequency

So, on filling all the details as mentioned above you will get the list of annuity plans along with the amount of pension that you will receive.

Required details for pension plans in nps

Other than this, the amount of pension also depends upon followings –

  1. A prevailing interest rate of the annuity: The Interest rate on annuity will be the same as government securities, ranging from 6% to 8%.
  2. Annuity Plan that you choose: There are different annuity plans provided by ASP. Here are some generic annuity options offered by ASPs. Remember, some ASPs may offer a slightly different or combination of these options:

Table on Annuity plans showing different plans of LIC with amount of pension

You can go to the NPS trust website to get the calculations on how much pension you will get.

Who is the Annuity Service Providers?

Following are the PFRDA – registered ASPs –

  1. Life Insurance Corporation of India (LIC)
  2. SBI Life Insurance
  3. ICICI Prudential Life Insurance
  4. Bajaj Allianz Life Insurance
  5. Star Union Dai-ichi Life Insurance
  6. Reliance Life Insurance
  7. HDFC Standard Life Insurance

What is the result of NPS fund performance till now?

Following tables will show a return of pension funds in the last 5 years –

Table showing returns on NPS fund Asset class ETable showing returns on NPS fund Asset class C

Table showing returns on NPS fund Asset class GTable showing returns on NPS fund Asset class A

NPS vs Mutual Funds (ELSS) and Fixed Deposits / PPF/ EPF

Here is a small comparison between NPS with other investment options like ELSS mutual funds, FD, EPF, and PPF. The below-given table will show the difference between NPS and other Tax Saving investment options –

There is also an app for NPS to provide more convenience to its subscribers. Do let us know if you have any queries regarding NPS. It was quite an exhaustive article, hence there might be something we might have missed.

We attended Berkshire Hathway AGM (9 learnings from Warren Buffet inside)

On 4th of May 2019, I (Nandish Desai) got an opportunity to attend the Annual General Meet of Berkshire Hathway, hosted by Warren Buffet and Charlie Munger (I also attended the AGM last year)

As a student of wealth, it was a great learning experience for me and I would like to share my learning and insights with all of you. I will not get into companies he named or into the numbers or statistics; I want to keep it simple so that you can pick a few insights for your personal growth.

Here are some of the pictures from the AGM meet.


Background of AGM

Every 4th of May in the city called Omaha warren buffet holds the Annual General meet of his company Berkshire Hathway. It is a global event where more than 30-40 k people travel from all over the world to attend the same. It is more like a celebration where people come to hear his view and to learn from his school of thought. Currently, one single stock of Berkshire Hathway is approximately around 3,00,000 USD ( or maybe more)

9 Lessons learned from the sharing of Warren Buffet

I am putting 9 points I learned from Warren Buffet which I made out of what he spoke in the AGM.

#1 – On Happiness: This one was an eye-opener for me. Most of us equate money with Happiness whereas Buffet made a point, happiness is not a place to reach rather it is a place to come from or operate from. If you are not happy with your current net-worth you won’t be happy by adding a few more lakh or crore to your net worth. He is asking us to focus on things that make us happy in the right now moment.

#2 – On Workability: The bold statement made for investors was very profound, “ All you need is to do is figure out what works and just do it”. Every investor has to discover his or her own process of investing. During the journey keep your eye on what is working for you. For example, in the area of health if going to the gym is working then go to the gym every day, and if yoga fits in your schedule then do yoga regularly. The focus is on bringing workability and staying engaged with the sport called wealth creation. There can be various ways to build wealth, you need to figure out what works for you.

#3 – On Building Competencies: Warren insisted on building and expanding one’s personal competencies. He insisted on investing in one’s own self more than anything else. The future belongs to masters and not to incompetent individuals. He also gave some examples of professionals you will never approach just because you doubt their competency level. You can do your own SWOT Analysis, find your strengths, weaknesses and it will help you to explore newer opportunities and will help you to eliminate weaknesses.

#4 – On Human Behavior: There are many books written on warren buffet and his investment style, however, he insists on reading people more than books. The real insights about human behavior can only be learned when you sit with someone and have a deeper conversation. Every human being is like a book filled with experiences and he invites everyone to spend more time with other beings.

#5 – On Investments: Price has the power to make or break any investment decision. When you buy expensive it can turn any deal into a bad deal. Maybe he was pointing towards buying when markets are low and having a hold strategy. Once a stock is bought, you can’t reverse or do anything if the price falls down.

#6 – On Making Investment Mistakes: Warren was generous enough to admit some of his mistakes on a public platform. In the world of investments, you are bound to make mistakes and going wrong is part of the game. Berkshire Hathway was a late entrant in the technology front and they admitted the same. They are slowly moving out of their old school of thought to match with the new shift happening out in the world.

#7 – On Succession plan: Some Questions in the AGM also came around his succession plan and asking to hand over the stage completely to his team of managers. As a person sitting in the audience I felt, it is a bit hard for Warren to leave the limelight but in next 1-2 years his managers will lead the AGM and will find space on the stage rather than sitting in the first few rows of the AGM

#8 – Big NO to IPO: He advised investors to stay away from hot IPO’s that float into the market. His logic is very clear, these companies may have huge growth potential but they have yet not shown or generated profits. There are few companies he named as well who show growth potential but the numbers they are generating are not sufficient for him to make any investment decision.

#9 – Focus on the BIG picture: He used a very interesting metaphor of owning a stock with owning a farm. By simply owning a farm and watching your farm every day won’t yield you any returns. One has to work hard on the farm to deliver the output. Similarly, by watching the stock price every day won’t serve you, the stock price will grow only when the company delivers performance over a period of time. He is again asking you to buy the right stock or equity or fund and hold for a longer time. Some people check the NAV very often, now it is not a good practice at all (stop watching your farm).

Off the stage, things learned from Mr. Ramdeo Agarwal

Ramdeo Agarwal the co-founder of Motilal Oswal has been attending the AGM from the last many years, he looks up Warren as his Guru and he makes a point every year to attend AGM without fail. In an informal set-up, we got a chance to hear his past AGM Experiences, I also met his first PMS client, some fund managers from the US and Singapore.

Signature on One Dollar Note

Mr. Ramdeo shared that at the start when the crowd was small warren use to sign on a dollar for his shareholders. The queue started to expand in the subsequent years and slowly the tradition of giving signature stopped. He still carries the one-dollar note with him when he met Warren for the first time.

He personally checks the arrangements: Even to date, Warren visits the AGM venue one day in advance to check the arrangements. It shows how committed he is to details and giving a pleasant experience to people attending the AGM.

What I learned personally from the event:

  1. Operating from a vision: I and Manish Chauhan, we started jagoinvestor with a vision of spreading financial awareness. The event helped me to ground more powerfully with our life’s vision and mission.
  2. Life Force: Both Warren and his partner are 87+ of Age and they are full of energy and enthusiasm. This is because they see age as a number, they hold their life force high and that keeps them going. Take good care of yourself, exercise regularly, eat well and keep the enthusiasm scale on a high note.
  3. Statue of Compounding: If you look at the wealth graph of warren buffet it has compounded after he crossed the age of 55. Compounding really works, equity markets are sensitive by nature but when you hold good funds or stocks it compounds and helps you to produce wealth. I placed my net worth on paper and I created a game for the next 30 years.
  4. Keep Re-inventing: Warren and his team are constantly re-inventing their approach and style. They are now stepping into companies that are more technology-based. It was an important lesson for me as well, the way we run jagoinvestor and its operations we will continue to re-invent every year. It will be a ritual for us to meet once in a year to introspect and to explore the unknown territories.
  5. Investors meet in a stadium: Yes, it is a dream to fill the entire stadium with investors. It is a dream I saw while I was in the AGM, Questions that kept hitting me were, what can I and Manish do or be to attract people to a stadium. What kind of financial discipline we will have to cultivate to inspire the investor’s community? What kind of content we will have to produce to create space in people’s hearts? The AGM gave me a dream bigger than who we are.
  6. Power of Partnership: I saw Warren and Charlie on stage, two people working on a common mission and both having a very different style. I would like to create the same Magic with my partner Manish Chauhan. We both have qualities distinct from each other, our styles are different and together it helps us to create magic. In the AGM I could learn that partnership creates magic. We need to partner at a deeper level with each other, with our team, business partners, clients, readers, and other interested parties.

My recommendation

The next financial year if you get a chance to listen to the AGM, they show the event live on yahoo finance or if you are in the US I highly recommend you attend the AGM. It is a great space to be in, people get together to celebrate wealth.

I was accompanied this time with some Big time investors, fund managers and the co-founder of Motilal Oswal Group and I see Mr. Ramdeo Agarwal as one of my mentors. He is amazing to be around, spending time with him was a great learning experience.

During the Trip, I made many friends, met many interesting personalities, overall it was a life-altering experience for me.

Our upcoming sessions in Hyderabad and Chennai

One more point – I am going to share some of my learning’s in our two upcoming sessions in Hyderabad (29th June) and Chennai (30th June), if you are in any of these cities, do book your seats for our 3-4 sessions.

What is EPS Scheme Certificate? (this is related to EPF pension)

Do you know that, when your employer contributes to EPF then a larger portion of it goes to EPS (Employee Pension Scheme)? In this article, I will elaborate to you what is EPS, how it works and also the process of getting its certificate to claim your pension.

Employee Pension Scheme

What is the EPS scheme?

EPS i.e. Employee’s Pension Scheme is actually part of EPF itself, which means it is applicable for all the employees who are contributing towards EPF. This scheme offers a guaranteed and secured pension to the employee after retirement. A nominee can also get the benefit of pension under this scheme after the death of the employee.

Both employee and the employer contribute equally i.e. 12% of employee’s monthly salary towards employees EPF. However, the 12% which the employer provides, out of that 8.33% goes towards EPS and only remaining 3.67% goes to your EPF.

Diagram showing contribution to EPS and EPF

Features of EPS:

  • The minimum pension amount that you get is Rs.1000 per month.
  • The employee can avail of the pension benefit after retirement or once he attains 58 years of his age.
  • The employee can defer his EPS up to the age of 60. In this case, he will get an increase of 4% on his EPS balance for every deferred year.
  • Widow/ widower and children (up to 25 years of age) of the deceased employee will also get the benefit of this pension scheme.
  • In case the widow/ widower opts for remarriage then, only the children will receive the pension until they attain the age of 25 years.
  • If the child is disabled then, he is eligible to receive the pension for his entire life.
  • To claim your pension you need to get the EPS certificate from EPFO.

Who can get EPS certificate?

Every employee who has been registered under EPFO can get EPS certificate for claiming his pension. The EPS balance can be either withdrawn after retirement or it can be claimed as pension by opting EPS certificate depending on the tenure of service and the age of the member. So, to elaborate this, I have given some examples below (The length of the service is rounded off to one year if the number of months served is more than 6)

    • A person working for 9 yrs. and 6 months (will be considered as 10 yrs.) but less than the age of 58yrs can either apply for the scheme certificate or can withdraw the money from EPS.
    • A person who has attained the age of 58 yrs. but has completed only 7 yrs. of service then he can either apply for a scheme certificate or can also withdraw.
    • A person who has done more than 10 years of service has to apply for a scheme certificate. He cannot withdraw money from the EPS account.

What is EPS Certificate?

EPS Certificate is a certificate issued by the Employees Provident Fund Organization (EPFO), Ministry of Labour, and Government of India, stating the details of service of the Provident Fund member. The EPS Scheme Certificate shows the service details of the employee, i.e. the number of years he has served and the family details of an employee, i.e. the member of the family who is eligible to get a pension in case of death of the member. As the EPS Scheme Certificate has all the details regarding the service of a member of EPFO, it serves as an authentic record of service.

This is how EPS Certificate looks like:this is how eps certificate looks like

How to apply for EPS Scheme Certificate?

Once you are leaving the job, then you have to fill the Form 10C. In the form 10C, there are options either to withdraw EPS or apply for EPS Scheme Certificate. Once you chose the options to issue EPS Scheme Certificate, then your employer sends the same to EPFO and then EPFO will issue you an EPS Scheme Certificate. If your all inputs are correct, then EPFO will issue you the EPS Scheme Certificate within a month or so.

This is how Form 10C looks like:

this is how form 10 C of EPS looks like

I hope this article has helped you in understanding every detail about EPS and its certificate. Let me know if you have any queries or doubts in the comment section.