The National Pension System (NPS) is increasingly recognized as a vital component of a well-rounded investment portfolio, especially with an eye toward long-term financial security. Launched initially for government employees in 2004 and extended to all citizens in 2009, the NPS stands out in 2026 as a cost-effective and flexible pension scheme designed for individuals across various sectors, including those in the private and unorganized sectors. As life expectancy and inflation rise, the importance of planning for retirement becomes ever more apparent, and the NPS offers a structured way to build a retirement fund while also providing tax benefits, making it highly relevant for today's investors.

Understanding the NPS

The NPS is an investment-cum-pension scheme sponsored by the Indian government with the goal of providing pension and old age security to all Indian citizens. The Pension Fund Regulatory and Development Authority (PFRDA) regulates the scheme. During their working life, subscribers contribute to the NPS, either directly or through their employer. Upon retirement or exit from the scheme, the accumulated corpus is available to the subscriber, with a portion mandated to be invested in an annuity to provide a monthly pension. A Permanent Retirement Account Number (PRAN) is assigned to each subscriber.

Why NPS Merits a Place in Your Portfolio

Several factors contribute to the NPS being a strong contender for inclusion in investment portfolios in 2026:

• Cost-Effectiveness: NPS is known for having one of the lowest expense ratios in India, which allows individuals to grow their retirement savings through long-term investments that give market-linked returns.
• Flexibility: NPS offers flexibility through its two account types, Tier I and Tier II. Tier I is the primary retirement account, while Tier II is a voluntary savings account with more liquidity. Also, under the Multiple Scheme Framework (MSF), fund managers can offer schemes with up to 100% equity exposure, which is suitable for young investors willing to take risks for potentially higher growth.
• Tax Benefits: Investing in NPS offers various tax benefits. Under the old regime, individuals can claim deductions up to ₹1.5 lakh under Section 80C, ₹50,000 under Section 80CCD(1B), and up to 10% of (Basic + DA) under Section 80CCD(2). Under the new regime, Section 80CCD(2) offers benefits of up to 14% of (Basic + DA).
• Adaptability: The NPS is designed to cater to a wide range of investors, from those just starting their careers to those nearing retirement. The Multiple Scheme Framework (MSF) allows fund houses to create specific products for different needs, like balanced and conservative investors.

Tax Benefits in Detail

The NPS offers attractive tax benefits under various sections of the Income Tax Act, 1961:

• Section 80C: A deduction of up to ₹1.5 lakh annually can be claimed under the old regime.
• Section 80CCD(1B): An additional deduction of up to ₹50,000 is available, over and above the ₹1.5 lakh limit under Section 80C, under the old regime. Starting April 1, 2026, this deduction is available for contributions made by a parent or guardian to an NPS account of a minor, with an overall cap of ₹50,000.
• Section 80CCD(2): For employer contributions to NPS, deductions are allowed up to 14% of salary where the contribution is made by the central or a state government, and up to 10% of salary where the contribution is made by any other employer.

NPS Swasthya Pension Scheme

The Pension Fund Regulatory and Development Authority has introduced the NPS Swasthya Pension Scheme (NSPS) on a pilot basis, linking retirement savings with healthcare spending. This scheme is most suitable for existing NPS subscribers aged above 40 with a substantial NPS corpus. It allows the subscriber to shift up to 30 percent of the NPS Common Account balance into a dedicated healthcare pool without fresh contributions.

Opening an NPS Account

Eligible Indian citizens between 18 and 70 years of age can open an NPS account either online or offline. For those joining the Central Government/state government, the process may be slightly different and requires approaching the HR department. To apply online, you need to log in to internet banking and choose NPS in the 'Service Requests' section.