NPS is a social security benefit offered by the government to target the majority of population that does not have/does not receive pension benefits from its employer.
Who is eligible for NPS?
* Any citizen of india(Resident of Non Resident) from 18 years to 55 years of AgeIs this a safe instrument?
* It is Agmark safety since it is a Government of India Initiative
what is the benefits of NPS?
* old Age Income
* Reasonable market based returns over the long term
* Extending old age security coverage to all citizens of India
Who is governing NPS?
* Regulated by pension Fund Regulatory and Development Authority(PFRDA)
Who are the fund managers?
Currently, there are six pension fund managers to choose from
* ICICI Prudential Pension Fund Management
* IDFC Pension Fund Management
* Kotak Mahindra Pension Fund
* Reliance Capital Pension Fund
* SBI Pension Fund and UTI Retirement Solutions.
* LIC Pension Fund LTD
Step -1: An individual needs to open an NPS account with one of the NPS’ distribution agents (banks, post offices etc.). The individual will be offered 2 accounts – TIER I and TIER II; TIER I is mandatory for all individuals opening an NPS account. On opening an NPS account, the individual is issued a Permanent Retirement Account Number (PRAN). This number remains with the individual for his life, even if he changes jobs/location. He would also be able to transact online. Currently, only TIER I is operational. TIER II is yet to be launched.
Step-2: Once the account is opened, the individual can choose the mode of operation of his/her account – which is: manual or auto.
Under manual operation, he can choose the investment options as per his risk profile (alike a ULIP). There are 3 investment options – (a) equity, (b) debt – government securities and (c) debt – non-government securities.
Under auto operation, the funds will be invested up to 50% in equity by default and the rest in debt. As maturity approaches, the funds are gradually switched to debt option in order to protect the fund from market fluctuations. Investment in equity however, is only through index mutual funds and the maximum allocation to equity is 50 % of the investible amount. The individual can also choose from the list of designated pension fund managers (currently six) to manage his pension fund.
NPS provides flexibility to subscribers where they can switch their pension funds among the three options and change fund manager if not satisfied with their performance.
Step-3: The contributions made on regular basis would grow and accumulate over the years, depending on the efficiency of the fund manager.
Step-4: On maturity, the individual has a choice to withdraw up to 60 % of the pension fund; Balance 40% is paid out by way of monthly pension.
How about the contribution to NPS?
* Minimum amount per contribution :Rs.500/=
* Maximum contribution per year :Rs.6000/=
* Minimum Contribution per year : 4 Times in a year
* No maximum contribution
* No periodically prescribed
* Contribute through cash,local cheque,DD can be accepted,but transaction booked after after realisation of cheque or DD.
What are the costs involved?
Transacting in NPS attracts both fixed and variable cost, which is deducted from the fund value.
Fixed cost:
- One-time account opening cost and issuance of PRAN – Rs 50
- Initial subscriber registration and contribution upload –Rs 40; Future fixed upfront charges – Rs 20.
- Annual maintenance charges – Rs 350
- Each transaction of NPS – Rs 10
The fixed cost adds up to Rs 470 per year.*
Variable cost:
- Annual custodian charge - 0.0075-0.05 per cent of the fund value
- Annual fund management charge - 0.0009 per cent of the fund value
What is Document Required for opening NPS account?
* Two recent colour photographs of 3.5 cm*2.5 cm
* Two copies of KYC documents(Proof of Identity and Proof of Address)
*Passport/Proof of Address card issued by india Post serves both proof of identity and Proof of Address
* Proof of Date of Birth
Advantages of NPS:
- Cost - NPS is the cheapest among current retirement products and defined contribution schemes; It is also easy to transact in NPS.
- Flexibility – The subscriber is given a PRAN, which will remain with him for forever. The account is portable irrespective of change in job/location.
- Returns - The returns would be higher than traditional debt investments (such as post-office schemes, bank deposits etc) due to equity element in the investment.
Disadvantages of NPS:
- Taxability - The contributions get tax benefit under Section 80C. However, at the time of withdrawal, the lump sum would be taxable as per the individual’s tax slab. It is a case of EET (exempt on contributions made, exempt on accumulation, taxed on maturity) unlike EPF, PPF which are EEE (exempt, exempt, exempt).
- Comparison to mutual funds - Since the NPS is meant for retirement and financial security, it does not permit flexible withdrawals as are possible in the case of mutual funds.
- Returns - If an individual is voluntarily investing in NPS, then he/ might as well invest in the stocks or mutual funds (MF). It is the tax benefits that would make NPS an edge above other pension products.
How can I open a NPS account?
You can open a NPS account by going to the bank branches of the banks that are authorized to sell this.
http://pfrda.org.in/
http://pfrda.org.in/indexmain.asp?linkid=182
http://www.indiapost.gov.in/Pdf/SOP-NPS-2.pdf
http://www.investmentyogi.com/planning/new-pension-system-nps.aspx
http://www.onemint.com/2010/09/27/a-primer-on-the-new-pension-scheme-nps/
http://www.icicidirect.com/InvestmentAcc/NPS/Composite_Application_Form.pdf
http://www.icicibank.com/Personal-Banking/account-deposit/New-Pension-System/faqs.html
