RetirementFinancial Glossary
NPS (National Pension System)
Definition
A government-sponsored pension scheme regulated by PFRDA where you invest during your working years and receive a regular pension after retirement. NPS offers equity, corporate bond, and government security tiers, with an additional Rs 50,000 tax deduction under Section 80CCD(1B) beyond the Section 80C limit.
Why It Matters
NPS is one of the lowest-cost investment vehicles in India with expense ratios below 0.1%. The extra Rs 50,000 deduction can save Rs 15,600 in taxes (at 31.2% slab). However, 40% of the corpus must be mandatorily annuitized at retirement, and annuity rates in India are typically low at 5-6%, which is a key trade-off to understand.