– By Meghashyam Sinkar
- About NPS
• The Central Government has introduced the National Pension System (NPS) with effect from January 01, 2004
• NPS was made available to All Citizens of India from May 01, 2009
• Similar to USA 401(K)
- Type of accounts
•Tier I &
- Investment Asset Classes and Choices
3)Asset class G – Government Bonds and related instruments ( 90% in G sec must , 10 % across securities guaranteed by centre & states and gilt MF .
4)Asset Class A – Alternative Investment Funds including instruments like CMBS, MBS, REITS, AIFs, Invltsetc. – restricted to 5% only
•Auto– Aggressive (75%), moderate(50%) and conservative (25%) life cycle fund.
- Pension Fund Manager (PFM) choices
1. Birla Sunlife Pension Management Limited
2. HDFC Pension Management Company Limited
3. ICICI Prudential Pension Funds Management Company Limited
4. Kotak Mahindra Pension Fund Limited
5. LIC Pension Fund Limited
6. Reliance Capital Pension Fund Limited
7. SBI Pension Funds Private Limited
8. UTI Retirement Solutions Limited
Note : These managers can change any time . Bidding process happen once in very 5 years.
- Charges and costing
• Initial Subscription – one time registration fee – Rs 125/- ,
• Annual maintenance cost – Rs 95/-
• Contribution charges – 0.1% of amount invested – Min Rs 10/- and max Rs 10,000/-
• Non financial request – Rs 20/- per request
• Custodian charges – 0.0032% p.a
• NPS Trust charges – 0.005% p.a.
• FMC – 0.01% p.a. which is the big plus point of this instrument .
- Nature of NPS
- Minimum Contribution – Rs 1000/- p.a. ( If not done , the account gets frozen and can be reactivated with Rs 500/-)
- Active and Auto mode can be changed twice in a year & PFM can be changed once in a year ( Such switches are not treated as withdrawal and hence will not be taxed)
- But one fund to another fund is taxed as it attracts capital gain
- No early exit , can do so only after completing 10 yrs .
- After 10 yrs and before 60 yrs , you get only 20% of the corpus and rest 80% will be converted to annuity.
- Partial withdrawal is allowed but with certain conditions which are (a) You should have completed 3 yrs (b) you can withdraw maximum 25% of your contribution amount and (3) only in below situations with requisite declaration – illness, building house , kids education and marriage , disability or starting your own venture .
- You get only 3 such partial withdrawals through your lifetime.This partial withdrawal are not taxed
- If you wish , you can defer maturity till your age of 70 yrs
- 60% lumps withdrawal- tax free and 40% annuity is always taxable
• You can check the returns of NPS on www.valuereasearchonline.com Or www.npstrust.org.in for different choices and PFM.
• You can open the NPS account with nationalised bank or online on NSDL website.
• Once the account is activated , you can mobile app for contribution , statements , valuation etc .
Please write back to us for any query or additional information.
Happy Investing !!!!