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NPS (National Pension Scheme) - All You Need to Know
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http://www.policybazaar.com/life-insurance/pension-plans/articles/nps-national-pensi... 14-11-2014
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Home Life Insurance Pension Plans Articles - PP NPS (National Pension Scheme) - All You Need To Know
Featured Recent Popular

How to Check LIC
Policy Status
Written by PolicyBazaar
Views: 5210
NPS: At a Glance
Published: 17 April 2014

User Rating: 3 / 5
LIC is the biggest

insurance company in
India and dominates
market...
National Pension System is the most economical and least known

Government approved pension scheme for Indian citizens in the 18-60 age
group. It was launched by Pension Fund Regulatory and Development
Authority (PFRDA) in 2004. The minimum yearly contribution is Rs 6,000,
which either can be paid in one go or in installments of at least Rs 500.
NPS being the cheapest market linked retirement plan among all other
Retirement plans (EPF, PPF and Mutual Funds) suggests that it would have
recorded maximum number of sales. But due to excessively less payment of
incentive/commission to the intermediaries, it is not getting promoted by
them.
The Scenario when the scheme was launched was worse, the fund
management cost was limited at 0.0009 per cent and points of presence, or
PoPs, where investors open the account, were not permitted to charge more
than Rs 20 per account, regardless of how big the investment was. Then
there was an account opening charge of Rs 50 for the central recordkeeping agency, or CRA, in addition to an annual CRA fee of Rs 225.
The fund management fee for non-government funds has now increased to
0.25 per cent and for government funds it has increased 0.0102 per cent.
Also, POPs are permitted to charge Rs.100 plus 0.25 percent of the
Life Insurance:
Checking Policy Status
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and...
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Investment- Why do
people invest? May be
they are in need of...
investment. This change will surely act as an encouragement for the agents
who will now actively market the product.
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Page 4 of 11
Do Senior Citizens
Types of NPS:
Qualify for a Term
There are two types of accounts that NPS offers:
Insurance Online
Tier-I Account
There is some good

news for the Senior
It is a basic pension account with limitations on withdrawal

*Before attaining 60 years of age, only 20% of the contribution can be
withdrawn while the rest 80% has to be necessarily used for buying
annuity from a life insurer. Annuity is a series of payments made at fixed
intervals of time . Annuity plans necessitate the insurer to pay the insured
income at regular intervals until his death or till maturity of the plan.
*After attaining the age of retirement also (60 years), close to 60%
Citizen at last! Now they

have...
Switch Investment Mix
with ULIPs
Many of us reading this
article have invested in
ULIPs or planning to...
contribution can be withdrawn and the rest 40% again has to be used
to purchase annuity from approved life insurers.
Increase Your Tax

Savings Today
Tier-II Account
Every one of us is eager
It is a voluntary savings option from which a person can withdraw money
to know ways of saving

tax. We are not very...
limitless.
Fund Managers
Are you Planning to buy

ULIP
The individual/organization that takes decisions regarding any portfolio of

investment (mostly a mutual fund, pension fund, or insurance fund), as per
the stated goals of the fund. It is necessary to opt for a fund manager while
We all know how

essential it is to save
money and thus opt
opening the account.
for...
The money is managed by seven fund managers appointed by the PFRDA.
Online Term Plan - A
The government employees accounts are taken care of by one of the best
New Trend in Insurance
three government fund managers, LIC Pension Plan, SBI Pension Plan
Industry
and UTI Retirement Solutions, the money invested by others is managed
The need of life
by one of the six fund managers, ICICI Prudential Pension, IDFC Pension,
insurance can never be
Kotak Mahindra Pension, Reliance Capital Pension, SBI Pension Funds
ignored. Now that LIC
and UTI Retirement Solutions.
has...
Mentioned below are the salient features of both Tier-I and Tier-II account
Tier-I
Tier-II
In case of Government fund,

the contribution from the
employee's side is 10% basic
salary + dearness allowance
with exactly same contribution
from the employer.
The contribution is Rs.1000 at the

time of account opening or a
minimum contribution of Rs.250 per
month can also be chosen. Also, it is
necessary to maintain a minimum
balance of Rs. 2000 at the end of
financial year.
But in non-government fund,

the investor pays Rs.6000;
Related Videos
Tier-I
Page 5 of 11
Tier-II
with a choice of paying at least

Rs. 500 per installment
In a Government fund, the
default investment is made
mostly in Corporate and
Government bonds
The investment is a mix of equity,

corporate bonds, government funds,
FDs, liquid funds etc.
In a non-Government fund, the

default investment is in stocks,
corporate bonds, government
funds, FDs, liquid funds etc.
Costs Involved in NPS

As discussed before the costs involved are minimal, only 0.25% of the
investment is paid to the intermediary as fund management fee. Let us see
how this cost is different from the costs of the other leading pension plans.
Types of Funds in NPS
Class Of
Fund
Invested In
Risk
Average
Return Since
Launch (%)
Index
Carry market risk
3.79%
based
Stocks
like any large cap

equity fund
Bonds issued by
Going
State
quality
Govt,
by
the
8.66%
of
Class Of
Fund
Invested In
PSUs
Average
Return Since
Launch (%)
Risk
and
companies,
Page 6 of 11
risk
Private Firms
would be low.
Bonds issued by
Lacks default risk
Central Govt.
but volatility can't
5.92%
be avoided in long
term bonds.
Depending on how open the investor is to risk, the corpus can be

divided among these three fund classes. Exposure to equity cannot be
more than 50%. However if the allocation is not specified, the exposure
to various classes, especially equity is decided on the basis of age.
The above figure also tells us about the average performance of NPS
funds in different classes.
The investment mix according to the age of the investor:
Age of the Investor
Percentage of Investment in Various Classes
Up to 35 Years
50% Equity and 50% Debt
40 Years
45 Years
50 Years
55 Years
So with increasing age the investment corpus gets more inclined towards
Debt
Pros and Cons of NPS

Pros:
Additional Tax Benefit:
The Finance Bill 2011-12 permits tax deduction on contribution up to 10 per

cent of basic salary and dearness allowance (DA) made by an employer
towards the NPS account of an employee under Section 80CCE. This is
over and above the Rs 1 lakh limit and is applicable if the contribution is
Page 7 of 11
done by the employer. This is the reason why corporate houses are
accepting NPS happily.
There has been a hike in inquiries about NPS mainly because of the tax
benefit under Section 80CCE.
Higher Fee to Intermediaries:
The fund management fee for non-government funds has been raised from
0.0009 per cent of assets under management to 0.25 per cent. The fee for
government funds has been changed to 0.0102 per cent from April this year
PoPs are allowed to charge Rs 100 plus 0.25 per cent of the investment, as
against a negligible fee of Rs 20 previously.
The change is promoting New Pension Scheme by offering incentives to
distributors and fund managers. The fund management fee of 0.25 per cent
is nothing when compared to other products.
Cons:
Tax on Maturity Proceeds:
There is confusion about taxation at withdrawal. According to the present
laws the funds would be taxed at withdrawal.
Under the current laws, around 60 per cent corpus on maturity can be
withdrawn while at least 40 per cent has to be used to buy annuity.
Presently, returns from annuity insurance plans are not tax-free.
The proposed Direct Taxes Code (DTC) plans to exempt NPS funds from
tax at withdrawal. However, it is uncertain if the DTC would allow tax
exemption on returns from annuity plans as well.
The tax at withdrawal stands in the way of making NPS the best pension
scheme.
Mandatory Annuity:
Another lag is limitation on withdrawal from Tier-I account, the primary
account for pension savings. On maturity also, one can withdraw only
around 60 per cent funds; the rest has to be used to buy annuity, the returns
from which are not tax exempted.
Even the annuity also has to be bought from one of the six PFRDAapproved insurers. Options to choose from in case of the number of annuity
providers are anyway less with LIC commanding a 70 per cent market
share.
Page 8 of 11
Low on Equity:
NPS portfolios are restricted to have more than 50 per cent exposure to
equity. It spells loss for people in their 20s or early 30s, as equity has shown
to offer 12-15 per cent returns per year over long periods.
In comparison to traditional retirement schemes such as EPF and Public
Provident Fund, which refrain from investing in stocks at all, NPS is the best
as it is a lot more flexible in terms of equity exposure.
So, investors wanting higher equity exposure can go for equity mutual fund
schemes such as large-cap funds and equity exchange-traded funds.
In Comparison to its competitors; EPS and Mutual Funds, NPS leads
by
*Scoring better in performance (refer to the investment mix table) and
costs
*But the 40% necessary investment in annuity after attaining the
retirement age, 50% cap on equity exposure and taxation on annuity
returns does make NPS a not so favorable option.
It is for the investor to decide as performance and costs are good
characteristics of NPS that make the latter shine brighter than its
expensive counterparts Such as Mutual Funds.
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NPS (National Pension Scheme) - All You Need to Know

NPS (National Pension Scheme) - All You Need to Know

Tax Saving Plans

LOANS & CARDS

All Credit Cards

NPS (National Pension Scheme) - All You Need to Know

NPS (National Pension Scheme) - All You Need to Know

Featured Recent Popular

Published: 17 April 2014

LIC is the biggest

National Pension System is the most economical and least known

NPS (National Pension Scheme) - All You Need to Know

Qualify for a Term

There are two types of accounts that NPS offers:

There is some good

It is a basic pension account with limitations on withdrawal

Citizen at last! Now they

Increase Your Tax

Every one of us is eager

It is a voluntary savings option from which a person can withdraw money

to know ways of saving

Are you Planning to buy

The individual/organization that takes decisions regarding any portfolio of

We all know how

opening the account.

The money is managed by seven fund managers appointed by the PFRDA.

Online Term Plan - A

New Trend in Insurance

and UTI Retirement Solutions, the money invested by others is managed

The need of life

insurance can never be

Kotak Mahindra Pension, Reliance Capital Pension, SBI Pension Funds

ignored. Now that LIC

and UTI Retirement Solutions.

In case of Government fund,

The contribution is Rs.1000 at the

But in non-government fund,

NPS (National Pension Scheme) - All You Need to Know

with a choice of paying at least

The investment is a mix of equity,

In a non-Government fund, the

Costs Involved in NPS

Types of Funds in NPS

Carry market risk

like any large cap

NPS (National Pension Scheme) - All You Need to Know

Lacks default risk

but volatility can't

Depending on how open the investor is to risk, the corpus can be

Percentage of Investment in Various Classes

50% Equity and 50% Debt

40% Equity and 60% Debt

30% Equity and 70% Debt

20% Equity and 80% Debt

10% Equity and 90% Debt

Pros and Cons of NPS

The Finance Bill 2011-12 permits tax deduction on contribution up to 10 per

NPS (National Pension Scheme) - All You Need to Know

NPS (National Pension Scheme) - All You Need to Know

NPS (National Pension Scheme) - All You Need to Know

Start the discussion

Disqus never moderates or censors. The rules on

Your email is safe with us. It's only used for

I'd rather post as guest