How are NPS tiers and scheme tiers different?

[roadtrippin69]

I was looking into NPS and have a slight confusion.

• There are two tiers of accounts, from what I understand, Tier 1 and Tier 2. Tier 1 is mandatory, and you can only have a Tier 2 account when you already have an active Tier 1 account.
• Now, there are tiers in some schemes as well (Schemes E, C, G, A). How are these tiers within a scheme different, for ex, tier 1 and 2 in Schema A? They do have different NAVs,
  • BIRLA SUN LIFE PENSION SCHEME A - TIER I - NAV: 12.0329
  • BIRLA SUN LIFE PENSION SCHEME A - TIER II - NAV: 10

 

[yoshs]

@roadtrippin69 NPS tier 1 investment can be exempted from tax calculation whereas tier 2 isn't. There is withdrawal cap on Tier 1 whereas it is absent in tier 2. (google it).

There are different schemes like G (govt securities), C (corporate bonds), E (equity class), A (alternative asset class). You will have to construct your NOS investment by mix n match as per your risk appetite.

 

[jordanfirestar]

@yoshs But why are the NAVs different for tier 1 & 2? Shouldn't they be same instead of being lower in tier 2 as OP pointed out? Tried searching but couldn't find the reason.

 

[neilc]

@jordanfirestar Tier 1 schemes cannot be redeemed until retirement while tier 2 schemes can be redeemed easily. To account for the liquidity requirements tier 1 and tier 2 schemes are handled separately.

Also, with tier 1 being mandatory for many government employees while tier 2 schemes are voluntary, many people don't invest in tier 2 schemes leading to lower NAV..

 

[mbrmusic]

@jordanfirestar Just a guess, probably their AUM is too low and nothing is deployed.

 

[roadtrippin69]

@jordanfirestar This is what I wasn't able to grasp.

 

[faustovilaverde]

@roadtrippin69 You can have Tier 2 even without a Tier 1 account. It's from my personal experience. Tier 2 contribution is exempted from tax under 80CCD.

 

[richardhandsonn]

@faustovilaverde Sorry I think you are misguided.
Tier 2 has no tax advantage whatsoever.

Check point 4
https://npscra.nsdl.co.in/tax-benefits-under-nps.php

 

[faustovilaverde]

@richardhandsonn It was a goof up from my end. Yes Tier 2 has no tax benefit. It's another 50K exempted from tax calculation ( apart from 1.5 L under 80C) if one has invested in Tier 1.
Thanks for pointing it out.