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Market Intelligence › Basic Terminologies
The asset allocation choice, the lock-in, and what happens at maturity
Published by The Retail Trader · JUL 24, 2026 · Retirement & Insurance
NPS is a retirement account in which you yourself decide how much money goes into equity, corporate debt and government securities. It has two tiers and they behave very differently.
Tier 1 is the real retirement account. It has a lock-in — the money stays tied up almost until retirement age, apart from certain specific partial withdrawals.
Tier 2 is a voluntary account with no lock-in, but it also does not come with the tax benefits of Tier 1.
These things make up the character of NPS:
• In active choice you pick the allocation yourself; in auto choice it changes with age.
• There is an upper cap on equity allocation.
• At maturity a part of the corpus is received as a lump sum and an annuity has to be bought with the rest.
• The annuity rate will be that of the time, not today's — this is its biggest uncertainty.
Choosing NPS only for tax saving is half a decision. Its real character is the lock-in and the compulsory annuity — if both fit into your plan, the product is good, and if not, the tax benefit is not compensation for that restriction.
This article is for educational purposes only — it is not a buy or sell recommendation, it makes no claim of guaranteed returns, and it is not advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.