Invest in Credit Risk Mutual Fund or not?

NPS as an investment tool is considered suitable for meeting expenses in post-retirement life. NPS also helps in tax-saving under Section 80C & 80CCD.

Since NPS is a retirement pension plan, 60% of the accumulated corpus is tax-free on maturity at the age of 60, the remaining 40% must be used to buy an annuity (fixed pension) which is taxable.

Tier-1 and Tier-2 Accounts

NPS Tier-1 account is a mandatory account whereas Tier 2 account is a voluntary one. This means you can only open the Tier-2 account if you have a Tier 1 account. Main difference between the two accounts is you can only withdraw money from the Tier-2 account. Minimum amount of investment in an NPS account is Rs 6,000 in a financial year .

Benefits of NPS Tier-2 Account: 

1. No maintenance charges are involved in opening a Tier 2 NPS account.

2. The withdrawal amount from the Tier 2  account can be used for day to day expenses.

3. Money can be transferred from Tier 1 to Tier 2 account whenever needed

4. No minimum balance required in Tier 2 account

5. No exit load during withdrawal

6. Can file a nomination

The Tier-2 account can only be opened if you have a Tier-1 account. NRIs cannot avail this facility.

If you want to withdraw money before the age of 60 from a Tier 1 account, then there are restrictions on it. However, there is a facility to withdraw 25% of the funds for children’s higher education, marriage, or buying a house and for medical expenses. This facility is available when you have completed at least three years of NPS investment. But Tier 2 account gives flexibility in this case. You can withdraw money whenever you want.