PFRDA (Pension Fund Regulatory and Development Authority), India has opened National Pension System (NPS) / New Pension Scheme to all Indian citizens starting today, on 1st May, 2009.
Its a safe, flexible and portable scheme introduced by Indian Government’s cell PFRDA; to replace the existing System of Pension System in the country and to provide income security after retirement.
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.
Any Indian citizen will be able to start a National Pension System 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 Retirement Account Number (PRAN) 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 Central Record-keeping Agency (CRA). 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 seven fund managers have been chosen LIC Pension Fund Limited, SBI Pension Funds Private Limited, IDFC Pension Fund Management Company Limited, Kotak Mahindra Pension Fund Limited, Reliance Capital Pension Fund Limited, UTI Retirement Solutions Limited and ICICI Pension Fund Management Company Limited that will manage investment money for NPS.
Fund Managers will charge very low fund management charges as compared to mutual funds.
Individual will also have choice to choose from 3 different asset classes: equity (E type), Govt securities(G Type) and Credit Risk-bearing Debt/fixed income based investments (C Type).
Active Choice investment: Investor can mix these three types also as per his choice. Invester actively decide as to how NPS investment is divided into 3 options (E, C and G).
Auto Choice investment: Another option will be Auto Choice life cycle fund and the investment allocation will be done based of investor’s age. In this scheme, equity portion (Asset class E) will be 50 per cent till age 35 after which it will reduce 2 per cent per year until it becomes 10% by age 55. Credit risk portion (Asset class C) will be 30 per cent till age 35 after which it will reduce 1 per cent per year until it becomes 10% 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.
Govt has extended Swavalamban initiative under which it will contribute 1,000 Rs per year (for a period of four years) to every national pension system (NPS) account opened this year with at least a matching contribution from the subscriber.
Biggest problem is investment is that, a person has to visit personally to POP office every-time he/she need to make contribution. There has been some respite to investors as some of the POPs have started taking deposits online.
India’s largest bank State Bank of India has started taking NPS contribution online through the onlineSBI login account. If you have internet banking of SBI, you can make payment to NPS online. You can check NPS contribution section under Payments/Transfers tab after login.
If you have NPS account opened with ICICI and you also have bank account with ICICI, you can also transfer amount online to NPS account. You need to add NPS account as biller in online ICICI account. You can go to ‘Bill Pay’ section and add a biller under Pension category. Once biller is added you can make payment to this account. The facility for online contribution payment towards national pension system (NPS) is allowed only for NPS accounts opened through ICICI Bank. Your registration for NPS contribution will be cancelled if the NPS account has not been opened through ICICI Bank. Any payments made towards such account will be reversed within three working days. Please make contribution towards the above NPS account only after you have received confirmation for registration into the mail box of your Internet Banking account.
NPS account holders can also invest through SIP or in lump-sum from their ICICI securities account (demat and online share trading account). But as this account is held by limited Indians, its of not much help.
CAMS service for online NPS payment has not started yet and page on their site shows under construction.For Govt Employees:
All new government employees (central and state) will no longer have GPF accounts and NPS account will be mandatory for them. So all who have joined government services after 1st Jan, 2004, will have NPS account.
NPS will work on defined contribution basis and will have two parts – Part I and Part II.
Tier I – Mandatory non-with-drawable Pension Account – 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.
Tier II – Voluntary with-drawable Savings Account – It will be voluntary tier-II with-drawable account from which individual can withdraw money anytime without giving reason. There will not be any contribution from Govt. side in this account.
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 through 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.
For account opening and issuance of PRAN : 50 Rupees
Annual maintenance charge: 350 280 Rupees per year
Initial subscriber registration charge: 100 Rupees
Transaction charges and contribution upload– 0.25% of the amount, subscribed by the NPS subscriber, subject to minimum of Rs.20 and a maximum of Rs. 25000.
Fund management charge: 0.0009% per year on the fund value.
Fund switch charges: 20 Rupees.
Any other transaction not involving a contribution from subscriber – Rs 20
As of now, this charge appears to be high. Considering 12 transaction a year (one every month), investor has to pay 470 Rs a year. That’s on higher side. These charges will reduce in coming years, as number of subscriber increases.
PFRDA may ask Government to partly pay the maintenance 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. It will come under exempt-exempt-taxed (EET) regime, the amount would be taxed at the time of withdrawal. NPS will not attract any Security Transaction Tax (STT) and Dividend Distribution Tax (DDT).
However PFRDA has suggested government to exempt scheme from tax, but that decision will only be taken by new government.
Update: As per new notification by Finance ministry, under Direct Tax Code (DTC), NPS will also come under EEE and withdrawal will also be non-taxable from 2011. So national pension system could become the best long-term savings option.
From April 1, 2011. Employer contribution from employer towards NPS will not be included in the Section 80 C deductions (Like what happens in case EPF currently). So if employer contributes 50,000 to your account and you contributes same amount, Your 50000 will be available for exemption under 80-C and there won’t be any income tax on rest 50,000 deposited by employer. This increasing your overall deduction claim.
NPS is available at selected Service Provider (SP) branches of various Point(s) of Presence, Click on link for each POP for branches address. You may also view list by state-city on this link: POP/POP-SP location details.
For more information, application form & offer document, walk into your nearest Service Provider branch of the above-mentioned Point(s) of Presence.
NPS (New Pension Scheme/System) - Application Form (456.0 KiB, 19,346 hits)
New Pension Scheme/System (NPS) - Offer Document (2.9 MiB, 14,183 hits)
New Pension System (NPS) - Welcome Kit (1.2 MiB, 9,388 hits)
NPS (New Pension Scheme) - Investment Guidelines (73.8 KiB, 10,652 hits)
New Pension System (NPS) Contribution Instruction Slip (NCIS) (15.1 KiB, 8,649 hits)
NPS Scheme Preference Change/Switch form (26.9 KiB, 3,485 hits)
Swavalamban Yojana Declaration Form (139.7 KiB, 3,662 hits)
Subscriber request form to change Point of Presence (POP) (63.3 KiB, 3,443 hits)
Subscriber request form to change POP-SP (16.4 KiB, 3,696 hits)
UOS-S12 Withdrawal form for Tier II account under NPS (47.0 KiB, 3,312 hits)
Request form for change in signature and/or change in photograph (12.8 KiB, 3,059 hits)
Request for Activation of Tier-II account under New Pension System (NPS) (215.3 KiB, 3,865 hits)
S1 - Subscriber Registration form to get PRAN (61.3 KiB, 3,621 hits)
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View Comments
You can open NPS through FundsIndia.com
i have phoned to NSDL DELHI to change my scheme to E but they told me that at present there is only one scheme open for govt employee which is DEFAULT and the same can be conformed from CRA web site.but under this scheme what % of money is being contributed in equities?
regards,
RAM
@Ram
Please download NPS Scheme Preference Change/Switch form from this page: http://www.pankajbatra.com/downloads/?dl_page=2.
Fill the same and deposit in your nearest POP office.
hi Pankaj,
i have to make the *.fpu file for the salary of the new joineees of centralGovt in varios deptt. please guide me how to make it.or where i can get help tomake the *.fpu file.
Pl. Tell me
Goerment servent can invest in NPS ?
Yogesh
@Yogesh
Yes, NPS account can be opened by any India citizen.
charges are of a little bit high, hopefully if the charges are 80% cut down and tax is exempted, then I shall definitely buy the product- please mark my point
Pls. give me tire 2 details. how is working.
@Sanjay
I will post Tier 2 details soon as a separate article.
If a Govt. employees got appointed on higher posts agaist Direct recruitment posts in his dept. or any other department after 1.1.2004, is eligible for older pension or has to opt for NPS
@Chandrahas
I believe if its appointment in same Govt office or if its a promotion, then older pension will continue.
In case its a resignation (all old accounts cleared) and then a new joining, NPS will apply.
Hey Pankaj, Its surprising that I came across exactly the same article on http://www.moneysavingshelp.com/2010/financial-planning/full-details-national-pension-scheme-nps-pfrda-india/
@Rahul
Very surprised to see this post.
How one can just steal content as it is.
Is there anything which can be done to stop this and punish these guys?
Hi Pankaj,
Is NPS same as PPF ? If not, what are the differences, if you could explain ? What are pros and cons for both in the long run ? Can I invest in both ? thanks !
@Smitakshi
NPS is not same as PPF.
PPF is a 15 years deposit scheme where you get a fixed return (8% p.a.). Its not exactly a retirement/pension plan. After 15 years, you will get whole amount back.
NPS is a pension scheme, which runs till retirement. It presents different investment options (equity, debt and Govt securities). Investor can choose the allocation to each of these investment options. Also investments are managed better by big fund houses like Reliance, SBI, ICICI, Kotak etc. Investment in NPS will be locked till 60 years. In long run, it will generate better returns than PPF and will give a retirement solution as well.
You can invest in both NPS and PPF simultaneously.
please tell me after retirement NPS will start to pay pension to a/c holders till death ?
@Naveen
Yes, NPS will pay monthly pension after retirement (60 years of age)
Dear Pankaj,
great site!
I wonder if you could help me. I am a doctor in a corporate hospital with an NPS account (50% equity and 50% debt, govt. nil) since April 2010 with SBI as my POP.
Of the 8 lakhs I invested in the NPS, I am DOWN to 7.58 lakhs now.
I read online that the average return on the scheme is 12%. Would you know then why I am losing my principal amount?
Best regards,
PS
@P sharma
Since you have invested 50% into equity and 50% into debt, there is a risk associated with the equity portions.
Since last six months, equity market have performed badly due to inflation and other local/global economic conditions. Due to this your equity portion has been hit badly.
In short term, market may do bad and your return may be negative. But in long term, it will generate better returns than fixed deposits and bonds.
If a person is working in private sector currently has an NPS a/c and after which he joined government sector whether he can continue with the same or he need to open a new NPS a/c separately.Is there any compatability between NPS account of Govt employee and others
@Parameshparamam
Same NPS account can be continued when a Govt office is a joined.