What is NPS ?
You can regularly invest your money in this and get a lump sum at your retirement and a fixed monthly income for the lifetime . It will work almost the same way as Private Pension Schemes .
Features
- No upper limit of Investment
- Minimum limit of 6,000 per year (Rs 500 per month).
- Annual Fees of .00009% (90 paisa for Rs 10,000) for Manging the fund.
- Tax benefit under sec 80C .
- Any Indian citizen between 18 and 55 years can invest in NPS .
NPS Bodies
- Regulator : The one who will regulate the NPS System .
- Fund Managers : Who will invest the money
- Point of Presence : Responsible for Sales and Marketing .
- Central Record Keeping Agency : Responsible for all the document Keeping work (Record Keeper)
Who will Regulate NPS ?
PFRDA (Pension Fund Regulatory and Development Authority) will monitor and regulate all the activities under NPS . It checks how your money in invested and makes sure that the fund managers are following the rules and guidelines . Its just like "SEBI for Stock Market" .
Who are the Fund Managers ?
There will be 6 Fund houses appointed by Government to manage the funds under NPS . You can choose any one of them to be your Fund Managers . They are :
1. SBI Pension Funds Private Limited.
2. UTI Retirement Solutions Limited.
3. ICICI Prudential Pension Funds Management Company Limited.
4. Religare Pension Fund Limited.
5. IDFC Pension Funds Management Company Limited.
6. Kotak Mahindra Pension Fund Limited.
They will take all the decisions of where the money received under NPS should be invested in the best possible way considering all the rules and regulations set by PFRDA.
Who are Point of Presence ?
The following entities have been approved by PFRDA for appointment as Points of Presence (POPs) under the New Pension System for all citizens other than Government employees covered under NPS .
1. Allahabad Bank
2. Axis Bank Ltd
3. Bajaj Allianz General Insurance Co Ltd
4. Central Bank of India
5. Citibank N.A
6. Computer Age Management Services Private Limited
7. ICICI Bank Ltd
8. IDBI Bank Ltd
9. IL&FS Securities Services Ltd
10. Kotak Mahindra Bank Limited
11. LIC of India
12. Oriental Bank of Commerce
13. Reliance Capital Ltd
14. State Bank of Bikaner & Jaipur
15. State Bank of Hyderabad
16. State Bank of India
17. State Bank of Indore
18. State Bank of Mysore
19. State Bank of Patiala
20. State Bank of Travancore
21. The South Indian Bank Ltd
22. Union Bank of India
23. UTI Asset Management Company Ltd
Who will be the CRA ?
As per the website of PFRDA there is a Contact of negotiation is underway and NSDL/CSDL is expected to be appointed as the CRA.
Investment Options and Structure
- Risky option : The higher allocation in this option will be in Equity .
To decrease the risk , Equity Investment is allowed only to invest in Index funds which tracks Sensex or Nifty . Also the equity exposure is caped at 50% .
- Moderate : IN this options Main exposure would be Corporate debt and Fixed income securities with some exposure in Equity and Govt securities . It will be moderately risky and rewarding .
- Safe : In this option mainly the investment will be done in Govt securities , and very little will be invested in Equity .
There will be a Default option, under which the allocation will be decided as per your age, where Equity Allocation will be high in the start and then it will come down as your age increases . You can also decide your own asset allocation as per your Risk appetite
Cost
There are different kind of Costs in NPS .
- Fund management charges of .0009% per Annam , which is excellent if compared to ULPP's or Mutual funds charges .
- Annual Maintenance charges of Rs 350 and Rs 10 per transaction to CRA (soon , it will be Rs 280 per year , Rs 6 for per transaction) .
- Rs 40 for registration with PoP and Rs 20 per transaction with them .
- There are other small costs too , lets leave it for now .
Now we will see some NEGATIVE points about NPS
1) Taxation Issue
Sadly , As per the current law, the amount received at the end from NPS would be taxable , PFRDA is trying hard with govt to exempt the tax. You will get the 80C benefits on the amount invested in NPS .
Though I assume Govt will make the returns TAX FREE. But till that time we have to wait and watch.
You may have to pay the TAX on your monthly retirement income !!!
2) Not Fixed Income
Though this is called Pension scheme, It actually did not meant a fixed monthly income after retirement. The monthly income may vary from month to month. Or it may happen even for couple of months you may not get any income.
So don't think that you will get fixed monthly Income upon retirement !!!
3) NPS is not at all risk free
This is Defined Contribution scheme and NOT Defined Benefits scheme. So the Risk/Reward is totally bourned by Investor. Government is just to set the regulation on how to manage the funds.
NPS is not at all risk free !!!
4) Conscious decision while choosing FM
The income depends on the Fund Managers that one chooses. As investor has to choose one Fund Manager between 6 appointed Fund Managers. So returns will vary from one FM to other FM depending on how he generates the income for you.
Your returns depends on the Fund Manager that you chooses !!!
5) Not with drawable
Currently NPS is launched with Tier-I plan. In this you cannot withdraw your investment till retirement. After six months NPS Tier-II will be launched, In tier-II you can withdraw partial amount.
Wail till NPS Tier-II is launched !!!
6) Few questions still left unanswered
PFRDA site has given following information about death of PRAN holder.
The amount can be disbursed as pension to SPOUSE of PRAN holder. But what if Spouse also passes away. There is no clear answer for what will happen to the corpus amount left. Will that be given to family members especially children as lump sum or on a monthly pension format? No Idea !!!
Many questions still unclear !!!
If you want to have STRICTLY fixed monthly income after your retirement, This scheme is not for you. Better go for PPF. If you have surplus amount left after you invested in PPF, you can go for this NPS scheme.
I assume over a very longer term (20 years) you will get more profit in NPS compared to PPF.
You can regularly invest your money in this and get a lump sum at your retirement and a fixed monthly income for the lifetime . It will work almost the same way as Private Pension Schemes .
Features
- No upper limit of Investment
- Minimum limit of 6,000 per year (Rs 500 per month).
- Annual Fees of .00009% (90 paisa for Rs 10,000) for Manging the fund.
- Tax benefit under sec 80C .
- Any Indian citizen between 18 and 55 years can invest in NPS .
NPS Bodies
- Regulator : The one who will regulate the NPS System .
- Fund Managers : Who will invest the money
- Point of Presence : Responsible for Sales and Marketing .
- Central Record Keeping Agency : Responsible for all the document Keeping work (Record Keeper)
Who will Regulate NPS ?
PFRDA (Pension Fund Regulatory and Development Authority) will monitor and regulate all the activities under NPS . It checks how your money in invested and makes sure that the fund managers are following the rules and guidelines . Its just like "SEBI for Stock Market" .
Who are the Fund Managers ?
There will be 6 Fund houses appointed by Government to manage the funds under NPS . You can choose any one of them to be your Fund Managers . They are :
1. SBI Pension Funds Private Limited.
2. UTI Retirement Solutions Limited.
3. ICICI Prudential Pension Funds Management Company Limited.
4. Religare Pension Fund Limited.
5. IDFC Pension Funds Management Company Limited.
6. Kotak Mahindra Pension Fund Limited.
They will take all the decisions of where the money received under NPS should be invested in the best possible way considering all the rules and regulations set by PFRDA.
Who are Point of Presence ?
The following entities have been approved by PFRDA for appointment as Points of Presence (POPs) under the New Pension System for all citizens other than Government employees covered under NPS .
1. Allahabad Bank
2. Axis Bank Ltd
3. Bajaj Allianz General Insurance Co Ltd
4. Central Bank of India
5. Citibank N.A
6. Computer Age Management Services Private Limited
7. ICICI Bank Ltd
8. IDBI Bank Ltd
9. IL&FS Securities Services Ltd
10. Kotak Mahindra Bank Limited
11. LIC of India
12. Oriental Bank of Commerce
13. Reliance Capital Ltd
14. State Bank of Bikaner & Jaipur
15. State Bank of Hyderabad
16. State Bank of India
17. State Bank of Indore
18. State Bank of Mysore
19. State Bank of Patiala
20. State Bank of Travancore
21. The South Indian Bank Ltd
22. Union Bank of India
23. UTI Asset Management Company Ltd
Who will be the CRA ?
As per the website of PFRDA there is a Contact of negotiation is underway and NSDL/CSDL is expected to be appointed as the CRA.
Investment Options and Structure
- Risky option : The higher allocation in this option will be in Equity .
To decrease the risk , Equity Investment is allowed only to invest in Index funds which tracks Sensex or Nifty . Also the equity exposure is caped at 50% .
- Moderate : IN this options Main exposure would be Corporate debt and Fixed income securities with some exposure in Equity and Govt securities . It will be moderately risky and rewarding .
- Safe : In this option mainly the investment will be done in Govt securities , and very little will be invested in Equity .
There will be a Default option, under which the allocation will be decided as per your age, where Equity Allocation will be high in the start and then it will come down as your age increases . You can also decide your own asset allocation as per your Risk appetite
Cost
There are different kind of Costs in NPS .
- Fund management charges of .0009% per Annam , which is excellent if compared to ULPP's or Mutual funds charges .
- Annual Maintenance charges of Rs 350 and Rs 10 per transaction to CRA (soon , it will be Rs 280 per year , Rs 6 for per transaction) .
- Rs 40 for registration with PoP and Rs 20 per transaction with them .
- There are other small costs too , lets leave it for now .
Now we will see some NEGATIVE points about NPS
1) Taxation Issue
Sadly , As per the current law, the amount received at the end from NPS would be taxable , PFRDA is trying hard with govt to exempt the tax. You will get the 80C benefits on the amount invested in NPS .
Though I assume Govt will make the returns TAX FREE. But till that time we have to wait and watch.
You may have to pay the TAX on your monthly retirement income !!!
2) Not Fixed Income
Though this is called Pension scheme, It actually did not meant a fixed monthly income after retirement. The monthly income may vary from month to month. Or it may happen even for couple of months you may not get any income.
So don't think that you will get fixed monthly Income upon retirement !!!
3) NPS is not at all risk free
This is Defined Contribution scheme and NOT Defined Benefits scheme. So the Risk/Reward is totally bourned by Investor. Government is just to set the regulation on how to manage the funds.
NPS is not at all risk free !!!
4) Conscious decision while choosing FM
The income depends on the Fund Managers that one chooses. As investor has to choose one Fund Manager between 6 appointed Fund Managers. So returns will vary from one FM to other FM depending on how he generates the income for you.
Your returns depends on the Fund Manager that you chooses !!!
5) Not with drawable
Currently NPS is launched with Tier-I plan. In this you cannot withdraw your investment till retirement. After six months NPS Tier-II will be launched, In tier-II you can withdraw partial amount.
Wail till NPS Tier-II is launched !!!
6) Few questions still left unanswered
PFRDA site has given following information about death of PRAN holder.
The amount can be disbursed as pension to SPOUSE of PRAN holder. But what if Spouse also passes away. There is no clear answer for what will happen to the corpus amount left. Will that be given to family members especially children as lump sum or on a monthly pension format? No Idea !!!
Many questions still unclear !!!
If you want to have STRICTLY fixed monthly income after your retirement, This scheme is not for you. Better go for PPF. If you have surplus amount left after you invested in PPF, you can go for this NPS scheme.
I assume over a very longer term (20 years) you will get more profit in NPS compared to PPF.
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