InvestorQ : What are the types of National Pension Scheme (NPS) accounts?
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What are the types of National Pension Scheme (NPS) accounts?

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1 year ago

The National Pension Scheme is a voluntary and long-term investment plan for those who want to create their retirement corpus. Under this scheme, one’s savings will be invested in debt and equity market, based on the insured individual’s preference.
This pension scheme is open to public and private sector employees. In fact, it is also open to those individuals who work in unorganised sectors. The only individuals who cannot subscribe to the National Pension Scheme are armed forces personnel.
There are two types of NPS accounts:
- Tier-I or Tier-1
- Tier-II or Tier-2
Tier-I or Tier-1
A Tier I NPS account is the most basic form of pension account. The investment mix varies based on whether the subscribed individual is a government employee or not.
For a government employee, the Tier I NPS account is a scheme that invests in government and corporate bonds. In contrast, for a non-government employee, the investment will be mostly in a mix of stocks, government and corporate bonds, fixed deposits and liquid funds.
A Tier-I NPS account requires a government employee to invest 10% of his/her basic plus dearness allowance (Basic +DA) to be invested every year. The government contributes the same amount in your account.
For a private sector employee, a Tier-I NPS account requires the subscribed individual to invest at least Rs 6,000 per year and a minimum of Rs 500 rupees per month.
Tier-II or Tier-2
NPS Tier-II, unlike Tier-I account, is a non-retirement NPS account. The government allows private and public sector employees as well as self-employed individuals to invest in it.
Subscribers of NPS Tier-II accounts have the freedom to select any fund manager within the NPS. Currently there are eight fund managers in the NPS. These are:
1. UTI Pension Fund
2. SBI Pension Fund
3. LIC Pension Fund
4. HDFC Pension Fund
5. Kotak Pension Fund
6. ICICI Pension Fund
7. Reliance Pension Fund
8. Aditya Birla Sun Life Pension Fund
Only those investors who have a Tier-I account can open a Tier-II account.
The government hasn’t kept any minimum balance requirement or minimum annual contribution for an NPS Tier-II account. There was previously a minimum balance requirement of Rs 2,000 at the end of each financial year, but this was removed by the PFRDA in 2016. However, the minimum contribution amount is Rs 250.