1) The NPS offers Tier 1 and Tier 2 accounts. Both invest in same funds but Tier 2 accounts are more flexible. Only Tier 1 account holders can open a Tier 2 account.
2) Withdrawals from Tier 1 accounts are restricted. Also, a certain percentage of the Tier 1 corpus must be invested in an annuity on maturity. No restrictions on withdrawals from Tier 2 accounts.
3) Tier 1 accounts should have at least four transactions and a minimum investment of Rs 6,000 in a year. Tier 2 accounts require a minimum balance of Rs 2,000.
4) Annual maintenance is charged only for your Tier 1 account. Per transaction fee applies to the Tier 2 account. The fund management charges are the same for both type of accounts.
5) An investor can transfer funds from a Tier 2 account to a Tier 1 account but not the other way round. Income tax benefits under Sec 80C available only for investments in Tier 1 accounts.
6) Open both type of NPS accounts but put the chunk of your investments in the Tier 2 account. Invest the minimum required amount in the Tier 1 account four times a year.
Source: Economic Times
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