Despite the flexible nature of NPS Tier II account together with some of its advantages, total asset under management under NPS Tier II is way short than in NPS Tier I account. First, of all you need to have in place an NPS Tier I account.
Below we list some of the advantages of maintaining NPS Tier II account in your financial portfolio:
1. Withdrawal flexibility:
Funds deposited towards NPS Tier II account can be withdrawn at anytime and with no quantum limit. It is to be noted NPS tier I account comes with a cap on withdrawal of up to 60% of the accumulated corpus and the amount can further be withdrawn only on attainment of retirement.
2. Works like a mutual fund:
NPS tier II account works similar to a mutual fund and in the long-run can accumulate a good enough corpus for you due to the power of compounding.
3. Low fund management cost:
The product commands a low FMC of just 0.01%, making it the cheapest product on offer.
Debt plans of NPS tier II have generated better returns:
This is due to the involvement of low expenses, which enable the return from the instrument to be higher than even diversified large cap funds across 3 and 5-year time frames.
5.Possibility of tax benefit under Section 80CCD : The lock in period of 3-years shall be applicable to avail the benefit that will be offered to government employees.
6.No tax implication of switching between fund managers: In case of switching in other products, there is application a capital gains payment. But in NPS, switching between fund managers does not result in any tax incidence. Fund manager can be changed once a year while asset allocation can be revised twice in a year.