What is NPS?
NPS stands for
National Pension System. The National Pension System (NPS) is a defined
contribution based pension system launched by Government of India with effect
from 1 January 2004 for all government employees and in 2009, for all the
general public.
Why was NPS started?
Like most other
developing countries, India did not have
a universal social security system to protect the elderly against economic
deprivation.
As a first step
towards instituting pension reforms, Government of India moved from a defined
benefit pension to a defined contribution based pension system. Apart from offering wide gamut of investment
options to individuals, this scheme would help government of India to reduce its pension liabilities.
What is need for Pension?
A pension is
source of regular income post ones retirement. It is necessary to match the
rising living expenses, rise in nuclear families and increase life expectancy.
How does NPS work?
v
NPS has the following bodies/ people
associated with it:
a) Regulatory Body: Pension Fund
Regulatory and Development Authority.
b) Point of
Presence: Most of the Public & Private Banks, financial intermediaries
responsible for Sales & Marketing.
c)
Provident
Fund Managers (PFM): Responsible for making the investments.
d)
Central Record Keeping Agency (CRA):
Responsible for back office and administrative processes.
How to start investing?
Step 1: So as an individual, we need to
approach the POPs, who offer NPS services. (For complete list of banks please visit: https://www.npscra.nsdl.co.in/pop-sp.php)
to start your NPS account.
v
What are the fund options available for NPS?
Active Fund
|
Auto Fund
|
Investor has a right to choose the asset class he wants to invest into
either in Equity (E) or Government Securities (G) or corporate Bonds (C)
|
This fund is best suited for people who don’t have basic knowledge of
investment and time to review it.
|
The maximum amount allowed in equity and equity based instruments is
50%
|
The funds get allocated as per one’s age in a predefined format.
|
The investor has to choose his allocation from the available PFMs at
the time of investment. He can change the same at later stage.
|
The investor is required to choose a PFM even in Auto Choice Fund.
|
Step 2: On submitting the required
filled form with the POPs, the CRA would generate Permanent Retirement Account
Number (PRAN) number to the subscriber. The same acts like a unique
identification for all future correspondence and complaints. The detailed
process can be obtained on the home page of any of the POPs. The details of
various fund charges and allocation cost break up would also be available with
them.
Features of NPS
v
Who all
can invest in NPS?
·
Citizen of India (between 18 – 60 years). Even NRIs (Non Resident Indians) can invest
in NPS subject to regulatory requirements under RBI and FEMA.
v
What is
the investment limit?
·
Minimum amount per Contribution – Rs 500/-
·
Minimum Contribution per year – Rs. 6,000/-
·
No of contributions per year - 1
There is no upper limit on the investments
per year.
v
Tax
Benefits
·
Tax deduction available under section 80C of the
Income Tax Act 1961.
v
Withdrawal
from NPS
In case of death, the funds can be
100% withdrawn by the nominee. However, if the subscriber otherwise wants to
withdraw funds, the following rules are applicable:
·
Before 60
years – 80% of accumulated wealth needs to be annuitized (with any
available annuity scheme provider) and 20% can be withdrawn lump sum.
·
On
attaining 60 years – 60% can be withdrawn in lump sum or phased manner (before
attaining 70 years of age) as desired. 40% needs to be annuitized on maturity.
What
Saarthi FP would like to add?
National Pension Scheme works similar
to any Unit Linked Plan. It is good for people who don’t have time to monitor
their investments on regular basis or are unable to maintain the disciplined
investments. It is good to have retirement savings in an asset class which can
fetch better returns. However, it should not be used as an alternate to PPF or
Direct Equity or an instrument to get deductions under Section 80C.
Bookmarks:
Bookmarks:
NPS Official Website : http://pfrda.org.in/
CRA Official Website : https://www.npscra.nsdl.co.in/
Link on India's Official Website : http://india.gov.in/spotlight/national-pension-system-retirement-plan-all
Thanks and Regards
Team
Email: saarthifp@gmail.com
