What are the steps to Invest and Withdraw in NPS?|NPS Demystified

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Speaker Info: Nirav Karkera is the Head of Research at Finity. He is known to look beyond just numbers and identify wealth-creation opportunities in the Indian capital markets. A former U.S. Oil & Gas, Chemicals credit analyst with a globally-renowned credit rating agency, he has a penchant for translating dynamic economics into wealth propositions. Nirav specializes in generating risk-optimal wealth for investors through strategic as well as tactical play with equity and fixed income assets. He is up, anytime, for an intellectual debate around anything that pertains to business, economics & wealth. He can be reached at nirav@finity.in Download android app: https://bit.ly/2OMEWvn

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TRANSCRIPT:

Now that we know who is eligible and we know the pension fund managers who will be managing investment into NPS.
It is only imperative to understand what is required to open an NPS account.
So basic bare minimum investment of Rs.500 is required to open an NPS account and thereafter a minimum of Rs.1000 per year is required to be invested mandatorily to be account active.

How to exit or withdraw from NPS, let’s discuss how does one exit the National Pension System?

So the condition is simple. Your NPS account should have either completed 10 Years or you should have crossed the age of 60 years whichever happens earlier fulfills the condition to exit a scheme.
So the redemption conditions slightly vary for these 2 cases so let’s take it part by part.
so the 1st case is when you redeem or when you wish to exit the National Pension System at the end of 10 years but you haven’t reached the age of 60 years in such a case you will be allowed to redeem only 20% of the total corpus accumulated.
And rest 80% needs to be mandatorily converted or invested into an annuity product.

What is an annuity product?

It is simply a product when you invest a lump sum amount and it gives you monthly income. The taxation of the 20% that you redeem will be taxed as your normal tax slab and the annuity income that you receive on a monthly basis out of the rest 80% will also be taxed at a normal tax slab.

Now let’s talk about other part lets say you want to exit at NPS after the age of 60. After the age of 60 you have an option to redeem up to 60% of your total corpus and out of this 60%, 40% is tax-free. The other 40% needs to be mandatorily reinvested into annuity product. As mentioned earlier the income received through the annuity product will continue to remain taxable at normal personal tax rate.