NPS

Know more about NPS (National Pension System)

1. What is National Pension System (NPS)?

The National Pension System is a pension scheme introduced by the Government of India to help Indian citizens create a retirement corpus. Under this, you can make systematic contributions in a profitable avenue that would provide you market-linked returns and a regular income in your post-retirement life.

2. Who should invest in NPS?

Any individual citizen of India (both resident and Non-resident) between the age of 18-60 years can join NPS. Overseas Citizen of India(OCI) are also eligible to join NPS.

NPS is a smart model that enables you to chalk out an investment plan for retirement in a proactive manner. It falls in line with the fundamental principle of investing that encourages individuals to start investing from a very early age to enjoy greater wealth accumulation.

3. Why should you invest in NPS ?

a. Corpus at retirement

NPS allows a subscriber to accumulate a corpus for retirement. NPS ensures regular pension income in the hands of the subscriber. A subscriber can withdraw upto 60% of the accumulated corpus at the age of retirement. The remaining corpus can be converted into an annuity, thus proving a regular pension income.

b. Extra Rs. 50,000 deduction from Taxable Income

Additional deduction of upto Rs.50,000 can be availed under section 80 CCD(1B) over and above Rs. 1.5 Lakh deduction under section 80C. You can also invest upto Rs. 1.5 Lakhs in NPS under Section 80C.

c. Market linked returns

National Pension System (NPS) allows a subscriber to invest in four asset classes such as Equity, Corporate debt, Government Bonds and Alternative Investment Funds. A NPS subscriber can decide allocation amongst there 4 asset classes.

d. Auto rebalancing

NPS provides auto-rebalancing option to the subscriber. The portfolio is rebalanced once every year. NPS automatically rebalances the portfolio on the subscriber’s age, shifting allocation from equity to debt as the subscriber grows older.

e. Choice of Pension Fund Manager

NPS allows a subscriber to choose from 8 Pension fund managers that are appointed by PFRDA( Pension Fund Regulatory and Development Authority of India). A subscriber can choose a fund manager based on the track record of the manager and preference. At present, you can choose any one of the following pension funds:

ICICI Prudential Pension Fund
LIC Pension Fund Ltd
Kotak Mahindra Pension Fund
SBI Pension Fund
UTI Retirement Solutions Pension Fund
HDFC Pension Management Company Ltd
Aditya Birla Sun Life Pension Management Limited.
Tata Pension Management Private Limited

4. What are the features of NPS?

a. PRAN Generation:

NPS allows a subscriber to choose from 7 Pension fund managers that are appointed by PFRDA( Pension Fund Regulatory and Development Authority of India). A subscriber can choose a fund manager based on the track record of the manager and preference. At present, you can choose any one of the following pension funds:

b. Fund Management:

Pension Funds are responsible to manage your pension corpus and invest your fund contributions as per the investment guidelines issued by the PFRDA. Such guidelines are framed in a manner that provides you with the optimal risk-return combination. The NPS portfolio is well-diversified and consists of Government securities, Corporate Bonds, and Equities. At present, you can choose any one of the following pension funds:

1. HDFC Pension Management Company Ltd

HDFC Pension Management Company Ltd is a wholly-owned subsidiary of HDFC Life Insurance Company Limited. The company started its operations as a licensed Pension Fund Manager (PFM) from 1st August 2013 to manage the pension corpus of individuals who are enrolled under the NPS. It also acts as a Point of Presence (PoP) via its physical and online platforms to provide NPS-related distribution and services to the subscribers. It has become the youngest and fastest-growing pension fund manager in the industry. It is headquartered in Mumbai, Maharashtra.

As a PFM, it is entrusted to monitor the market and economic trends to devise investment strategies that conform to the key risk parameters and PFRDA guidelines. With a long term investment philosophy, the company aims to maximize the likelihood of achieving your goals and objectives. It derives the confidence to give the most fulfilling and rewarding investment experience from its seasoned portfolio managers who have vast experience in pension administration and asset management.

2. ICICI Prudential Pension Fund

ICICI Prudential Pension Funds Management Company is a wholly-owned subsidiary of ICICI Prudential Life Insurance Company Limited. The company commenced its operations in May 2009 as a registered pension fund manager to manage the funds collected under the NPS for Indian citizens other than government employees. It offers both online and offline platforms to open and operate NPS accounts. It is headquartered in Mumbai, Maharashtra.

It draws strength and expertise of the parent company that has significant experience in managing long term investments of life and pension funds and employee benefit funds and annuities for many corporates including PSUs. The company has a sound investment framework that focuses on safety, stability, and returns to deliver superior risk-adjusted returns over the long term. It has one of the most experienced fund management team in the private sector.

3. Kotak Mahindra Pension Fund

Kotak Mahindra Pension Fund Ltd. is a joint venture between Kotak Mahindra Asset Management Limited and Kotak Mahindra Bank Ltd. The company started acting as a registered pension fund manager from 30th April 2009 to manage the funds under the NPS. The pension fund is an effort on part of the Kotak group to motivate individuals to save towards their retirement. It is headquartered in Mumbai, Maharashtra

The company leverages the extensive experience of its fund managers in Indian financial markets that covers Equities, Money, and Fixed Income Markets. The Kotak group is one of India's leading financial organizations that offers a wide range of financial services i.e. commercial banking, stockbroking, mutual funds, life insurance, and investment banking. In a way, the group caters to the diverse financial needs of individuals and corporations

4. LIC Pension Fund Ltd

LIC Pension Fund, under the sponsorship of LIC, is the first pension fund company in India to receive the certificate of commencement. The company started its operations as a certified pension fund manager on 28th January 2008 to manage the pension contributions of the government employees. It acknowledges the responsibility entrusted over it and realizes that the lives that are associated with it are very valuable indeed. It is headquartered in Mumbai, Maharashtra.

The company aims to maximize the return on investment of its subscribers with the right mix of investment strategy that spans across different sectors. The steady growth of the company can be attributed to its robust fund management and scientific investing practices.

5. UTI Retirement Solutions Pension Fund

UTI Retirement Solutions Ltd. is a wholly-owned subsidiary of UTI Asset Management Company Ltd. The company began its operations from 31 March 2008 as a licensed pension fund manager to manage Pension Funds of government employees. Later, on 13 March 2009, it became authorized to handle the NPS funds for all citizens, other than the government employees. It envisages being the most preferred Pension Fund Manager. It is headquartered in Mumbai, Maharashtra.

The company aims to be the most innovative and technically sound wealth creator. It is focused on the investor and wants to provide customer satisfaction through a highly motivated staff. Also, it plans to be a socially responsible organization that is known for its best corporate governance. It endeavors to provide advice that is innovative and technically sound and be a structured point of sales for NPS.

6. SBI Pension Fund

SBI Pension Funds Pvt. Ltd. started its business on 14 December 2007 as a union government company. The company manages pension funds across the spectrum for corporates, banks, government employess, and under Atal Pension Yojana. It is the most reliable name in the Pension Fund Management domain and the largest pension fund manager (PFM) amongst all the PFRDA-approved PFMs for NPS. Additionally, it has been classified as the ‘Default Pension Fund Manager’ by PFRDA. It is headquartered in Mumbai, Maharashtra.

The company manages significant market share of the asset under management under the private sector. It ensures that all investments are carried out as per the provisions of PFRDA Guidelines/ Directions. It follows an approach of quality and secure investment that delivers maximum profitability for its subscribers. The company holds expertise across asset classes and has an experienced and dedicated team to manage the subscriber’s corpus.

7. Aditya Birla Sun Life Pension Management Limited

Aditya Birla Sun Life Pension Management Limited (formerly known as Birla Sun Life Pension Management Ltd.) is a wholly-owned subsidiary of Aditya Birla Sun Life Insurance Company Limited (ABSLI). It began its operations as a licensed pension fund manager on 5 May 2017 to manage the pension funds under the NPS. It also acts as a Point of Presence (PoP) through its physical and online platforms to distribute and service NPS-related tasks for the public at large. It is headquartered in Mumbai, Maharashtra.

The company leverages on the rich experience of its parent group Aditya Birla Capital Limited (ABCL) that has a strong presence in life insurance, asset management, private equity, corporate lending, structured finance, project finance, general insurance broking, wealth management, equity/currency/commodity broking, online personal finance management, housing finance, pension fund management, and health insurance

8. Tata Pension Management Private Limited

Tata Pension Management Limited is a Public incorporated on 31 August 2006. It is classified as Non-govt company and is registered at Registrar of Companies, Mumbai. Tata Pension Management Limited (TPML) sponsored by Tata Asset Management Private Limited has been appointed as a Pension Fund Manager (PFM) by the Pension Fund Regulatory and Development Authority (PFRDA), for managing the funds under National Pension System (NPS). The 'Certificate of Commencement of Business as Pension Fund' was issued by PFRDA on 28th July 2022; and the business is now operational from 18th August, 2022.

Tata Pension drives self-empowerment among citizens through a NPS Scheme so one’s vitality in life is not hindered from lack of means to live it fully. As part of a 150–year strong Tata Legacy of giving back to the people, it’s driving ‘A Planned Retirement’ so you give up only your employment, not living life on the whole when you’re 60.

c. Withdrawal Norms:

You can exit from NPS and withdraw the accumulated corpus subject to certain conditions.

Withdrawal at the time of retirement:

You can redeem 60% of the accumulated corpus upon the attainment of 60 years of age. You are required to purchase an annuity plan with the remaining 40% of the corpus. If the value of your accumulated corpus is up to Rs 5 lakh, then you may withdraw the entire corpus in a lump sum.

Withdrawal before the age of retirement.

You can withdraw 20% of the accumulated corpus if you want to exit before the age of 60 years. You are required to purchase an annuity plan with the remaining 80% of the corpus. If the value of your accumulated corpus is up to Rs 2.5 lakh, then you may withdraw the entire corpus in a lump sum. You need to complete a minimum of 5 years before you can exit from NPS.
Upon your death, your nominee would receive the entire accumulated corpus and he/she would get an option to purchase an annuity plan with the corpus received.

5. What are the tax benefits of investing in NPS?

You can build wealth for your post-retirement years with effective investments in NPS over the long term. In addition to this, NPS also offers tax benefits as follows:

a. If you are a Salaried Individual:

Your contributions towards NPS up to 10% of Salary (Basic + Dearness Allowance) are eligible for a tax deduction under Section 80CCD(1) of the Income Tax Act 1961, subject to a ceiling of Rs 1.5 lakh of Section 80C.
An additional investment of Rs 50,000 is eligible for a tax deduction under Section 80CCD(1B) of the Income Tax Act 1961.

b. If you are a Self-employed Professional:

Your contributions towards NPS up to 20% of Gross Annual Income are eligible for a tax deduction under Section 80CCD(1) of the Income Tax Act 1961, subject to a ceiling of Rs 1.5 lakh of Section 80C.
An additional investment of Rs 50,000 is eligible for a tax deduction under Section 80CCD(1B) of the Income Tax Act 1961.

6. How to open an NPS account?

If you wish to open an NPS account, you may visit any authorised Point of Presence (PoPs) or any bank branch (private and public sector) that are enrolled to act as PoP. You need to submit the following documents to open an NPS account:

a. Completely filled in subscriber registration form

b. Proof of Identity

c. Proof of Address

d. Age/date of birth proof

e. Cancelled Cheque (if applicable)

You can also open an NPS account online through eNPS if you have:

a. Aadhaar Card, or

b. PAN card with Savings account in one of the authorised banks that perform KYC verification online.

7. What types of NPS accounts are available for investment?

NPS offers you two types of accounts i.e. Tier I & Tier II.

The Tier I account is mandatory while you have the option to invest in the Tier II account as an add-on voluntary savings facility. You become eligible to withdraw the retirement corpus from the Tier I account only upon the completion of 5 years from the date of opening of the account or on attaining the age of 60 years, whichever is earlier. However, in the case of a Tier II account, you can make withdrawals at any point in time as per your requirement. Also, in Tier I, you are required to make minimum contributions of at least Rs 1000 annually. But no such restrictions exist for a Tier II account with respect to the minimum frequency of contributions.

8. How does NPS fare as compared to other tax-saving investments?

You may find a number of popular tax-saving investment avenues available under Section 80C of the Income Tax Act 1961 like five-year Fixed Deposits (FDs), Public Provident Fund (PPF), ELSS funds, National Pension System, among others. However, you need to consider your financial goals, risk appetite, and investment horizon to invest in the right alternative.

FDs and PPF can fit the debt component of your overall investment portfolio and you may invest some portion of your portfolio towards them. But their fixed-income nature may not help in wealth accumulation. Besides, the lock-in period of 5 years and 15 years respectively makes them relatively less liquid.

Investing in ELSS Funds and NPS makes sense to earn higher market-linked returns. You should know that NPS has a higher lock-in period than ELSS funds that has the shortest lock-in period of 3 years. Additionally, if you want to take aggressive exposure to equities, then you may not get that in NPS since the maximum allocation to equities is limited to 75%. As against this, you might be better off with ELSS Funds that allocate as high as 90% of the invested corpus towards equities. In such a scenario, the risk profile of ELSS Funds would be higher than that of NPS.

Hence, based on these parameters, you can choose an instrument accordingly to fulfill your wealth creation and tax-saving goals.

9. What are the registration and transaction charges levied for the NPS Service?

Service	Charges and Method of deduction
Registration Charge	Rs 400 + GST, collected upfront
Initial Transaction Charge	0.5% of the transaction amount or min Rs 30 and max Rs 25000 + GST, collected upfront
Subsequent Transaction Charge	0.5% of the transaction amount or min Rs 30 and max Rs 25000 + GST, collected upfront
Other Services & Charges Pls ref link	1. D-Remit Charges 2. NPS Charges