PFRDA (Pension Fund Regulatory and Development Authority), India has opened New Pension Scheme (NPS) to all Indian citizens starting today, on 1st May, 2009.
Its a safe, flexible and portable scheme introduced by Indian Goverment’s cell PFRDA; to replace the existing System of Pension System in the country.
PFRDA was established by the Government of India to promote old age income security by establishing, developing and regulating pension funds, to protect the interests of subscribers to schemes of pension funds.
Initially it was decided that it will be open for public from 1st April, 2009, but the launch date has been postponed due to the model code of conduct for the general elections coming into effect.
Any Indian citizen will be able to start a New Pension Scheme account and can start investing any amount up for a pension.
Under this scheme, an investor can deposit their contributions in Bank Branches and Post offices all over the country. Unlike EPF (employee provident fund schemes), there will be only one number allotted to each investor, In case of change of job or location of job, it can be easily transferred to another branch. Each Investor will be allotted a unique 16 digit Permanent Pension Account Number (PPAN) it will valid for life like current PAN number. There will be no need to open a new account every time you change job or location unlike the current EPF (Employee Provident Fund)
In starting, there will be 23 Points of Presence (POP) including PSU banks and post offices, and they will be provide account opening and other transactions facility. Following is the participating POP list: Allahabad Bank, Axis Bank, Bajaj Allianz General Insurance Co, Central Bank of India, Citibank, CAMS (Computer Age Management Services), ICICI Bank, IDBI Bank, IL&FS Securities, Kotak Mahindra Bank, LIC (Life Insurance Corporation of India), Oriental Bank of Commerce, Reliance Capital, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, SBI (State Bank of India), State Bank of Indore, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore, South Indian Bank, Union Bank of India, UTI.
There will be multiple choices of investment and pension fund managers. All records will be kept by a central authority. Central authorities and fund manager will be providing performance reports and NAVs (Net Asset value) regularly, so investor can track and invest accordingly. In Starting, NAVs will be declared once every year and switching fund manager will be allowed only once a year.
Currently six fund managers have been choosen UTI, SBI, ICICI Prudential, Reliance Capital, IDFC and Kotak Mahindra that will manage investment money for NPS.
Fund Managers will charge very low fund management charge as compared to mutual funds. Individual will also have choice to choose from equity, govt securities and debt/fixed income based investments. Investor can mix these three types also as per his choice. Another option will be life cycle fund and the investment allocation will be done based of investor’s age. In this scheme, equity portion will be 60 per cent till age 35 after which it will reduce 3 per cent per year until it becomes 0 by age 55. Investor will have option of investing monthly/quarterly, but minimum 4 investments in a year will be compulsory.
As per the notification by PFRDA, Currently only half of investment can go into equities, even if investor chooses the equities type funds. This limit will only be reviewed after a year. Deepak Parekh had suggested PFRDA to allow public to invest all saving in equities but board was not ready to do that.
There will be regular account statements and information desks to keep information transparent.
For Govt Employees:
All new goverment employees (central and state) will no longer have GPF accounts and NPS account will be mandatory for them.
NPS will work on defined contribution basis and will have two parts – Part I and Part II.
Part I – Monthly contribution will be 10 percent of basic salary and equal amount will be deposited by Govt. This amount will be kept in a non withdrawal Pension Tier I account.
Part II – It will be voluntary tier-II withdrawable account from which individual can withdraw money anytime without giving reason.
Govt Employee can exit after age of 60 years from Tier I Scheme and it will be mandatory for him to invest 40% of pension amount to purchase an annuity thru a Life Insurance Company, It will provide pension for the life time. In case of employee wants to leave NPS before age of 60, the mandatory annuity will be 80 per cent of the pension amount.
Exit age for new pension scheme will be 60 years.
Charges:
For account opening : 50 Rupees
Annual maintenance charge: Initially 350 Rupees per year
Transaction charge: Initially 10 Rs. per transaction
Fund management charge: 0.0009% per year on the fund value.
As of now, this charge appears to be high. Considering 12 transaction a year (one every month), investort has to pay 470 Rs a year. Thats on higher side. These charges will reduce in coming years, as number of subscriber increases.
PFRDA may ask Government to partly pay the maintainence cost to reduce overall cost for investor.
The bad part about NPS is that the returns will be fully taxable not like EPF and PPF. However PFRDA has suggested government to exempt scheme from tax, but that decision will only be taken by new government.
So go, open your NPS account today!
NPS Account Opening Form
Launch Notification:
Related posts:
Nice writing. You are on my RSS reader now so I can read more from you down the road.
Allen Taylor
Great!
Your inputs are really good.Hope you understand individual investers requirement better.
Thanks Again.
Thanks for writing on NPS. But problem is I asked every bank like SBI/ICICI/HDFC…. but didn’t know regarding NPS.So how could I open my NPS account. I am from Kolkata,West Bengal
As the system has just started so there will be issues in applying in it coz of slow government processes.
I would request you to wait for some more time so that Govt may issue further notification on it. Keep watching this space for more updates.
-Pankaj
go to axis bank website search for nps . You will get list of branches which offer this service every branch do note offer this service.
See this website for POP SC: http://www.npscra.nsdl.co.in
It is possible that some POP SC may not be offering NPS A/c opening at the moment because relevant printed literature and forms may not be available. Try at the main branches. Wish you success!
Regards
Well, nice article and ppt from PFDRA.
Seems this is catching up and now they got 5 lakh accounts. Few days back in ET, it was reported that it has just 300 accounts at the end of May or June and surprised to see how that number swell post budget. (Either first news was wrong or second one is having some stars(*) in it)
Though high trasaction cost and charges, in long term, it will be a force to recon with ( a lot of money – 50% going to NIFTY index), might create bubble in Nifty Stocks. (Read somehwhere on blogs)
I will prefer ETF – Nifty ETF (Benchmark or QNIFTY.EQ from Quantum) for time being as there is cap of 50% on all the investments in Equity which is not for young investors who can take more risk.
I have a NPS a/c. But I am little confused about the NAV value. When I was enterd into the system then NAV was approx 10, but market now touch 17000 still NAV 10.50 or 10.60 in between where my 50% investment into the equety. its movment is very slow.
What we will see in future? any statastic do you know?
Another question comes in my mind that after 30 years, I mean when it will be mature then I shall receive a pension as per that days market ret. But do you have any idea about pension rate on that days… so we can think how much money we need to accquire that time.
I want to know the 10% of the DCP that paid by government is taxable or not? While calculating my taxable income of running month should I have to include the amount paid by Government as taxable income? Is there any official document saying that the Government contribution should not be included as a taxable income?
sir,can you give scheme details in section-d of pran
First of all, many a thanks for such a nice article.
Is there any tax benefit on initial investment? (Like deferred taxation)
It doesn’t seem attractive at all. It seems management of Fund is centrally controlled; appointment of six fund-managers is just symbolic (like the role of a president in Indian constitution). In absence of competition there is no incentive for better performance. So I think it would be another money sucking machine to steal money from middle-class family like maximum sold LIC policies where people don’t get more than 2-3% return.
As Mr. Milind has already said it is better to buy in nifty-ETFs systematically blindly and on retirement just sold all of them and put them in a fixed deposit. And if someone is risk averse then choose any of the top 5 debt-fund and invest regularly just like PF/EPF.
My Scheme Distribution has given below which I have been selected with my won choices.
I can understand TIER I (E/C/G category) but here another two scheme name SBI-SCHEME-I NAV-12.5843 / SG-SCHEME 1/SBI NAV -10.4275 under the SBI PENSION FUND SCHEME.
I didn’t understand regarding those scheme and I have another question I can’t select this SBI-SCHEME-I instead of my current SCHEME?
SBI PENSION FUND SCHEME C(CORPORATE BONDS)- (40.0000%)
SBI PENSION FUND SCHEME E(EQUITY)- (50.0000%)
SBI PENSION FUND SCHEME G(GOVERNMENT SECURITIES)- (10.0000%)
NPS 2009 along with PPF would be a decent long term savings option with safety for those with low income. Govt has made a noble decision to provide pension for all with the start of NPS 2009.
Thanks for yur reply but my query is different
I have an NPS A/C.My Scheme Distribution has given below
SBI PENSION FUND SCHEME C(CORPORATE BONDS)- (40.0000%)
SBI PENSION FUND SCHEME E(EQUITY)- (50.0000%)
SBI PENSION FUND SCHEME G(GOVERNMENT SECURITIES)- (10.0000%)
But I can’t understand
SBI-SCHEME-I / SG-SCHEME 1 under the SBI PENSION FUND SCHEME.
I didn’t understand regarding those scheme and I have another question I can’t select this SBI-SCHEME-I instead of my current SCHEME?
Go to iimps/ iief… they are the ones who started the NPS and proposed it to the govt
I want to know wheather the employer’s contribution will be added to the employee’s salary or not????? will it be taxable????
My deduction in nps is Rs.30,000/- and so also of my employer.
@Yadavsirohi,
Yes, as per NPS rules, employer’s contribution also comes under employee’s salary.
Employee contribution can be take non-taxable under section 80C and employer’s part under 80CCD.
if employers contribution also comes under income and is eligible for deduction. what is the necessity to include and deduct the same
im learning about nos all of them im requesting provide knowledge till now what i know is good plan