NPS, introduced by the Govt. of India, is a defined-contribution pension scheme. Here, the pension that the individual receives after retirement is proportional to the contributions made by him/her/them during his/her/their working years.

First implemented for the central government employees who joined service after January 01, 2004 (except those in the armed forces), NPS then gradually adopted by many state governments for their employees. In 2009, this pension planning system was made available to all Indian citizens and introduced as an employee benefit scheme for private/corporates and public sector organizations in 2011.

Any Indian citizen between the ages of 18 to 70 can open his/her/their NPS Account and choose to continue this investment till he/she/they turn 75. Non-resident Indians (NRIs) and Overseas Citizens of India (OCIs) can also invest in NPS.

The purpose of this default primary NPS Account is to enable the subscriber to accumulate a corpus for his/her/their retirement. Hence, equity exposure (where there are higher returns but also have higher risks) here is limited to 75%. But subscribers can invest up to 100% in fixed-income assets like corporate bonds and government securities which are low risks/low returns type of financial instruments

Contributions to the Tier-I Account are eligible for tax benefits (in old tax Scheme), and a minimum annual contribution of ₹1,000/- is required to keep this account active. Withdrawals before maturity are conditional and can only be taken out thrice and only after 3 years of previous such withdrawal. These are called partial withdrawals, are limited to 25% of the contributions made by the subscriber to date and are available only 3 years after the subscriber joins NPS.

Unlike the Tier-I Account, there are no limits on withdrawals from the Tier-II Account. That is because the Tier-II Account is secondary and is for general investment purposes. Thus, there is no cap on the equity exposure in these investments and have no minimum annual contribution requirements. It can be seen as a low-cost mutual fund.

Further to mention that there are no tax benefits in the Tier-II Account.

The Tier-II NPS Account can be opened online by logging in on your CRA platform (website or app). Kindly note that an active Tier-I Account is a prerequisite for a Tier-II Account.