National Pension System (NPS) is a long-term investment scheme that offers tax-saving and pension benefits. This scheme is regulated by the Government of India and the Pension Fund Regulatory and Development Authority (PFRDA). The returns from NPS are market-linked, and its performance depends on the underlying assets. This article covers HDFC Bank NPS account, its features, benefits and account opening process in detail.
What is an NPS Account?
Nation Pension System (NPS) is a retirement benefits scheme that offers tax benefits. This scheme comes under the purview of the Pension Fund Regulatory and Development Authority (PFRDA) and the Government of India. The returns from NPS are market-linked. The performance of this scheme depends on the performance of the underlying assets.
All Indian citizens (residents and NRIs) can open an NPS account online or offline. Under the National Pension Scheme, there are two types of accounts, namely Tier I account and Tier II account. Tier I is a mandatory account and is a pension account. At the same time, Tier II is a voluntary account and is an investment account. To invest in NPS account Tier II, one must have a Tier I account.
Under the NPS scheme, the subscribers have the choice of pension fund managers. There are eight authorized pension fund managers in India, and a subscriber can choose from any of them. In case they haven’t chosen a pension fund manager while filling up the application form, then SBI is assigned as a default to the subscriber.
Investors of the National Pension Scheme can also choose between auto and active mode of investment. In auto mode, the asset mix is determined by age. While in active mode, the investor can choose the asset mix. The tenure of the National Pension Scheme is until the subscriber reaches the age of 60. One can choose to extend the scheme until the age of 70.
The scheme allows partial withdrawals from Tier I scheme after completion of 3 years from account opening. They can withdraw 25% of the accumulated corpus three times during the tenure of the investment. The scheme also offers tax benefits. Subscribers can claim up to INR 2 lakhs under Section 80C and Section 80CCD(1b) of the Income Tax Act. Moreover, upon maturity, subscribers can withdraw 60% of the amount (lump sum), which is entirely tax-free.
Features of HDFC NPS Account
Following are the features of HDFC Bank NPS Account:
- The objective of a Nation Pension Scheme is to provide social security for all citizens of India.
- One can open an HDFC Bank NPS account at any HDFC Bank branch.
Tier i account and Tier ii account
- NPS Tier I is a mandatory account with tax benefits.
- Tier 2 pension account is an optional investment account with no tax benefits. Subscribers can also withdraw their wealth from the scheme at any time.
- Minimum investment amount at the time of the Tier i account opening is INR 500.
- For Tier ii account, the minimum investment during account opening is INR 1,000.
- The minimum investment amount for the Tier i account during a year is INR 1,000.
- For a Tier ii account, there is no minimum investment.
- HDFC NPS subscribers have the flexibility to choose their Pension Fund Manager (PFM). Furthermore, one can also change their PFM once in a financial year.
- The bank offers customized investment options with the flexibility to choose between different asset classes such as Equity, government securities and corporate bonds. Also, the portfolio allocation percentages can be changed two times in a financial year.
Return and Cost
- HDFC NPS is a NAV based product that offers attractive market-linked returns.
- The NPS account in HDFC bank is a low-cost product with 0.01% fund management cost.
Investors of HDFC NPS can choose between the following three forms of investment:
- High risk and high returns: Investing majority in equities.
- Medium risk and medium returns: Investing majority in debt instruments.
- Low risk and low returns: Investing only in debt instruments.
National Pension Scheme HDFC account holders can choose from the following two forms of investment:
- Active Choice: Investors can choose between the different asset classes.
- Auto Choice: This is a default option that invests funds as per the NPS subscriber’s age.
Also, HDFC caps the maximum equity investment (exposure) at 50%.
Furthermore, the NPS account is portable across geographies and jobs.
Subscribers can withdraw the entire HDFC pension corpus if the amount is less than INR 2,00,000 when they turn 60 years old.
NPS account opening and maintenance
One can open NPS in HDFC either online or offline:
HDFC NPS Online:
Offline: Visit the nearest HDFC bank branch
Furthermore, subscribers have online access to their HDFC NPS account through Web and Tele applications to CRA.
- 60% of the total accumulated wealth under the scheme is tax-free on withdrawal.
- HDFC bank NPS investments up to INR 1,50,000 are eligible for tax deduction under Section 80C of the Income Tax Act, 1961. An additional investment of INR 50,000 to the NPS HDFC bank account also qualifies for tax deductions under Section 80CCD (1B) of the Income Tax Act, 1961.
- Over and above this, Employer’s contribution up to 10% of Basic + Dearness allowance (DA) is deducted from taxable income of the employee under Section 80 CCD (2) and the employer under Section 36 (i) (iv-a) of Income Tax Act 1961 with no ceiling on the amount.
Eligibility for Opening HDFC NPS Account
Following are the eligibility criteria for opening HDFC Bank NPS Account:
- Citizens of India and NRIs between the age 18 years and 65 years can open HDFC NPS accounts. However, PIO and OCI holders cannot contribute towards NPS. Also, all public sector, and corporate sector employees can invest in NPS schemes.
- Being KYC compliant is mandatory for opening HDFC NPS Tier 1 accounts. Following are the documents for KYC: Photo ID proof, address proof, date of birth proof, and application form.
- The subscriber has to make at least one investment per year to keep their HDFC Bank NPS account active.
- HDFC NPS Tier 2 account can be opened only if the subscriber has an active Tier i account. Furthermore, NRIs cannot open HDFC NPS Tier 2 accounts.
For composite applications:
- The minimum investment is INR 1,500 for Tier i and Tier 2 together.
- Submission of the cancelled cheque is required.
Also, the subscriber must not have any other NPS account.
Documents Required To Open HDFC NPS Account
Following are the documents that an Indian citizen has to submit to open HDFC NPS Scheme:
- PAN Card and Aadhaar Card – linked to the applicant’s HDFC account.
- Passport size colour photo
- Address proof
- Scanned image of the subscriber’s signature.
For NRIs, the following are the documents:
- Completely filled registration form.
- Photocopy of the passport, including the following: first, last and visa page.
- Address proof, if the current residing address is different from the one mentioned in the passport.
- Passport size colour photo
How to Open NPS account in HDFC a Step-By-Step Guide?
HDFC is one of the POP-SP (Point of Presence – Service Provider) for the NPS scheme. Hence one can open an NPS account with HDFC.
- To invest in NPS schemes through HDFC, one needs to have a PAN Card, Aadhar Card, passport size photographs, and an HDFC bank account.
- Firstly, fill the NPS application form with all necessary details.
- Then, choose the fund manager from the available list of eight fund managers.
- Next step is to choose the mode of investment. There are two choices, active and auto mode.
- Lastly, fill in the nominee details and make an initial contribution of INR 1,000 to get the Permanent Retirement Account Number (PRAN).
Benefits of An NPS Account
Following are benefits of having an HDFC NPS account:
Choice of a fund manager
Under NPS schemes, one can choose the fund manager from the list of available pension fund managers. Moreover, they can change the fund manager if the performance of the existing fund manager is not satisfactory.
Choice of the mode of investment
Subscribers of NPS schemes can choose how their money is invested. There are two modes of investment, namely, active and auto. If subscribers wish to choose their own asset class mix, then they can select active mode. Else, the investor can opt for an auto mode where the portfolio allocation is made based on age.
NPS schemes mature when the investor turns 60. Hence the investment is locked-in until maturity. However, NPS schemes allow partial withdrawals of 25% three times during the tenure of the investment. But the withdrawals can start only after three years from opening the account and the gap between two withdrawals should be at least five years.
NPS is a tax saving investment. Investment in NPS qualifies for tax deduction up to INR 2 lakhs per financial year under Section 80C and 80CCD(1b). Also, upon maturity, NPS schemes allow subscribers to withdraw 60% of the accumulated amount, which is completely tax-free.