Investment

What Is NPS Tier 2 Account In India

NPS Tier II is a voluntary account offering flexible savings and withdrawals alongside an active Tier I account.

Synopsis:

  • An NPS Tier II account is a voluntary account that requires a minimum initial contribution of ₹250 but has no mandatory annual contribution.
  • Withdrawals from Tier II accounts are flexible, with no exit load charges, though the investments are not tax-free.
  • No minimum balance is required, making it easy to manage funds.
  • Funds can be transferred to a Tier I account at any time, and different investment patterns can be chosen.
  • To open a Tier II account, you must be an Indian resident aged 18-60 and already have a Tier I account

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Overview

Over the years, the world has witnessed an improvement in human life expectancy, currently at an average of around 73 years. With increased longevity comes the added years in retirement. Hence, planning for life after retirement has become even more critical.

In India, most people retire around the age of 60-65. To help them plan for their post-retirement years, the government-sponsored National Pension System (NPS) is one of the few social security schemes. Initially launched only for government employees, the pension scheme was later opened to all sections of the population. Today, any citizen of India between 18 to 70 years of age can subscribe to the NPS.

NPS is a great tax-saving retirement fund and the perfect long-term investment tool. Under the NPS, there are two types of accounts - Tier I and Tier II, the former being mandatory and the latter a voluntary or additional one.

What is an NPS Tier II account?

The NPS Tier II is a voluntary account that can be opened only if you have a Tier I account. When opening an NPS Tier II account, you are required to contribute a minimum of ₹250However, there is no mandatory annual contribution requirement in a Tier II NPS account, unlike a Tier I account, where a subscriber must contribute a minimum of ₹1,000 each year. The only thing to note is contributions made to a Tier II NPS account must be in multiples of ₹250, with no cap on the maximum contribution made.

A Tier II NPS account offers greater flexibility in withdrawal, and no exit load is charged when you withdraw funds from your Tier II NPS account. However, NPS Tier II investments are not tax-free.

How does the NPS Tier II account work?

When you put your money into the National Pension Scheme, you have four asset classes to invest your corpus: equity instruments, government securities, corporate bonds, and Again, there are two ways to manage asset allocation: active choice or auto choice. In active choice, you get to decide and customise your portfolio depending on your risk profile and knowledge of asset classes. The NPS offers the auto choice option whereby you can go with an automatic allocation portfolio for those who do not wish to enter the portfolio designing process.

Benefits of an NPS Tier II account


A few key advantages of a Tier II NPS account are listed below:

  • No additional annual maintenance charges are applicable.
  • An excellent way to save for your day-to-day needs
  • You can withdraw money at any point in time.
  • You can move the funds to the primary pension account (Tier I) at any point.
  • No minimum balance is required in an NPS Tier II account
  • Separate nomination facilities are available
  • You have the option to choose a different investment pattern from Tier I

Eligibility to open an NPS Tier II Account


Listed below are the eligibility criteria for opening an NPS Tier II account:

  • Should be an Indian resident between 18- 60 years of age
  • Should have a Tier I account and a PRAN number allotted
  • A minimum amount of ₹1000 to be deposited when opening a Tier II account

Click here to open an NPS Account now!



Disclaimer: *Terms and Conditions apply.  The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice before you take any/refrain from any action.

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Frequently Asked Questions

It is a voluntary savings account available to subscribers with an active Tier I NPS account.

Yes. Tier II generally allows flexible withdrawals, unlike Tier I which has withdrawal restrictions.

The minimum amount to open Tier II is ₹250 as per NPS Trust, while some channels may require ₹1,000 at registration. 

No. NPS Trust mentions no minimum annual contribution restriction for Tier II accounts.

No. You need an active Tier I account to open an NPS Tier II account.