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NPS Tier 2 Account Explained: Features, Benefits, Eligibility—All You Need To Know

You can open a NPS Tier II account with a minimum contribution of Rs 1,000;there is no cap on maximum contribution.

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Outlook Money
February 6, 2024
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If you are exploring a retirement savings plan, the National Pension System (NPS) could be one option, where you can grow wealth and save taxes up to Rs 1.5 lakh in a financial year simultaneously. NPS has two types of accounts: Tier I and Tier II, with no upper investment limit in both. While the tax benefit is available only with an NPS Tier I account, one can only open an NPS Tier 2 Account if they have a Tier 1 account.

So, a person who has an NPS Tier 2 Account can save in a Tier I account to avail of tax benefits and make additional investments in Tier II for further growth. In a nutshell, the entire NPS Tier 1 and NPS Tier 2 Account ecosystem can help you save for your pension while ensuring the growth of your investments to fulfill your financial dreams.

Very few investment products in the market might offer such benefits. This article will mainly focus on the NPS Tier II account: what it is, how to open it, and the eligibility criteria.

Also Read: How Does The NPS Prosperity Planner Work, And What You Can Do With It?

If you have a Tier I account, you can open a NPS Tier II account with a minimum contribution of Rs 1,000. There is no cap on the maximum contribution. Unlike a Tier I account, Tier II offers greater withdrawal flexibility with zero exit load. The only flipside is that the investments in Tier II accounts are taxable. Also, there is no mandatory annual contribution rule in a Tier II account.

NPS offers four asset classes as investment options: equity, government securities, corporate bonds, and alternative investment funds. You can also choose the active or auto option to manage the assets. For example, if you select the active option, you get to customize your portfolio based on your risk profile and knowledge, whereas, in the auto option, the assets will get automatically allocated via the selected fund managers, offering a hands-free experience.

Also Read: NPS Partial Withdrawal Rules To Come Into Effect From Feb 1: All You Need To Know

At the 40After40 Retirement Expo organized by Outlook Money in Mumbai last month, Sashi Krishnan, the chief executive officer of the NPS Trust, stressed curbing instant gratification and getting on to the task of savings for a happy and peaceful retirement life.

Krishnan said people’s increasing life expectancy has made retirement planning paramount. Life expectancy, he said, has increased by 26 years in the last five years, underscoring the need for retirement planning for next 40 years after 60.

NPS currently manages assets close to Rs 11 lakh crore from over seven lakh subscribers.

Benefits In A Nutshell

  • It has no additional annual maintenance charge.
  • You can withdraw money anytime.
  • You can move the funds to a Tier I account anytime.
  • You don’t need to maintain a minimum balance.

Eligibility For Tier II Account

  • You must be an Indian citizen aged 18-60, NRIs included.
  • Should have a Tier I account and a PRAN number.
  • The minimum deposit amount is Rs 1,000.
  • There is no upper limit for contribution.
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