Today we will be talking about the “New Pension Scheme” Launched by Govt. of India.
What is NPS ?
Its a pension system recently launched by Govt of India from 1st April, 2009.. 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 .
Until now the pension schemes was available to Govt employees and employees of Big companies who has Provident fund facility . Any other person had to go with Private Pension schemes provided by Insurance Companies . IT as not a govt scheme for common person , With NPS now its a common person gateway to Pension Schemes .
Read previous post which was a guest post by Nooresh Merani on “How does a day trader looks like”
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 .
Read other details below .
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)
Lets see each of them In detail now .
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 is expected to be appointed as the CRA . there were other bodies too who wanted to be CRA , but the most suitable of all is CSDL . You can see them as the back office for maintaining records , administration and customer service functions .
What are the Steps of Investment ?
1. Visit a point of presence (PoP), fill up the prescribed form with the required documents.
2. Once registered , CRA will send you a Permanent Retirement Account Number (PRAN) . This will be unique to every person .
3. Select your Amount and Investment Option .
Investment Options and Structure
Structure wise they are very similar to ULIP’s or ULPP’s from Investment Point of View . You have different kind of funds options with different exposure to -
– Equity Instruments
– Corporate Debt
– Fixed Income Instruments
– Govt Securities.
Different Options
- 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 .
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 .
UPDATE May 3 , 2009
“Under following circumstances your account may be closed before attaining retirement age?
- death
- account value reduces to zero
- change in citizenship status.
Thanks to Viral for bringing up this point “
Read NPS FAQ here
Conclusion
As per my views , Its a good initiative from Govt to introduce a Pension Scheme which will give common people a chance to invest in Pension schemes which is from Govt . One important thing to understand and note is that Even though its a pension scheme , the returns are not guaranteed . It can vary drastically depending on your asset allocation and how you choose the fund options .
Other Negative point at this point is that the amount recieved at the end would be taxable which can have adverse affect on the return potential . But I am sure soon govt will make the final amount receieved non-taxable .
Currently I dont rate it at par with PPF or EPF . At this point it would be wise to invest money in this if you have any money left over after your PPF and EPF contribution . Waiting for somemore time before taking a call on this would be worthwile . Overall NPS passes 
Question for you
- Are you personally impressed by NPS and will you invest in NPS ?
- What else govt can make changes in NPS to make it attractive to you ?
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{ 84 comments… read them below or add one }
hye manish, i am a govt employee and joined on 06-09-2004. for us already NPS exit which is 10% of (basic pay + DA) everymonth.govt will contribute same amount everty month. can i see online how much total contribution worth as of now. ???if yes where and what is the procedure. ???? is return generated from MF is Taxable in long run( 25years + )
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 about corpus left after death of spouse.
will that be given to family members especially children as lump sum or on a monthly pension format?
there is no clear answer for this.
@Rajnish
I dont think its NPS for you . It must be normal providend scheme of Govt like EPF . You need to clear this with your Department where you work , They must be able to give you details of where can you see the amount accumulated till now .
Returns from Equity Mutual Funds are not taxable after 1 yr . So if you get any profit after 1 yr in Equity mutual funds , its all yours as per current laws .
Manish
@Viral
Under following circumstances your account may be closed before attaining retirement age?
- death
- account value reduces to zero
- change in citizenship status.
Currently the whole picture is still fuzzy on many aspects for NPS , the biggest of them is the tax on the maturity amount .
It would be wise to wait for some time before Entering it .
Manish
Manish,
Do you have anyupdates for Viral questions?
What happens to the corpus after the death of the spouse?
Thanks
Actually I dont have it right now , I havent look in deep . Do you want to take up this and find out ? Do some google search and find out and update us
Manish
Manish,
After the death of the spouse a new pension account will be created for spouse if he/she wishes.Entire corpus will be transferred to the new account. I enquired this in CAMS info center. However all other PoP don’t even have an idea of NPS
great that you added this information
Manish
Manish,
Nice and brief article on NPS.
But you missed one point.
Tier-I and Tier-II.
I case of Tier-I, we cannot withdraw the amount, whereas in case of Tier-II we can withdraw the amount.
Tier-II is still not rolled out, but will be launched soon.
Overall your article is good as usual.
Sachin
Also one more point, For Govt employees, Govt will also pay the same amount along with their employees to the NPS corpus.
But this is not the case for Private employees. Private companies need not pay anything. And I am sure that no private company will follow the path of paying towards this scheme for their employees.
So for Govt employees this is good scheme, but for private employees this is ok scheme.
Sachin
Sachin
Thanks for the comments and valuable additions . I was actually not aware of these points. I am glad you mentioned these points .
The reason govt employees may get extra from govt is that govt is employer to them and not to private people. Private company employees get EPF contribution from there employers . So this time its govt employees chance
overall still one should wait for more clarity in NPS .
Manish
Some more additions:
Charges
———
1. Entry load -> Rs 50 deducted from fund value as account opening charge. Rs 40 deducted as initial registration charge.
2. Recurring Load:
You can opt for either fixed charges or variable charges if my understanding is correct.
Fixed charges: Rs 350 and Rs 10 deducted as CRA charges. Rs 20 per PoP transaction.
Variable charges: Custodian charge of 0.0075 – 0.05% p.a. Fund management charge of 0.0009% p.a.
Premature Withdrawals:
No partial withdrawal allowed.
Complete premature withdrawal mandates annuitization of 80% of corpus.
Maturity benefits:
Upto 60% is given as lumpsum, which is taxable at applicable rate (this rule hopefully will change). Rest is given as annuity.
Sachin,
The difference between Tier-1 and Tier-2 is that Tier-2 allows partial withdrawal. But both Tier-1 and Tier-2 allow complete premature withdrawals.
Correct me if I am wrong.
Some more info I wud like to add:
1. The account can be operated from any place in India. PRAN is unique permanent number assigned to a person and can be operated from any place.
2. In May every year, one can switch funds, change fund manager. PFRDA is planning to increase the number of switches.
The information I have shared is based on article that appeared in Outlook Money magazine.
@apk
Thanks to Praveen for adding more useful information . Great !
Manish
Dear All,
Kindly tell how to invest in NPS. I am new to investment kitty for my retirment.I am 28 yrs old.
Regards
Ravi
ravi
Go to any point of presence and you will get information their about the procedure for investing in NPS
Manish
Manish
Where I’ll go, at bank or P.O. or LIC, where I will open this NPS?
Let me know please.
Arup
You have to go to the point of contacts , they are the banks mentioned in this article .
Manish
Great Information!! And Possibly it should reach to every employed Indian, at least in both urban as well rural areas…Great job..Thank u
@tanjot
thanks for visiting , stay tuned to read more articles
Manish
hi Manish, Great information…Can we open this scheme online thru Demat account?
Rajender
For now you can not open through demat
if we open the account now.if there is change in tax rule i.e EEE .It will aply for that or not/
Not a bad idea for long term investement. Gut feeling is at some point of time govt will make final income tax free. May be one can start with risky option and later on switch over to safer ones, depends on age.
S Singh
I dont think govt will make income tax free ever .. it can happen but chances are extremelly low in our country
Manish
hi all,
can you please tell me that a govt. employee get appointed before 1st jan.2004 and having GPF a/c is eligible to open this account for another pension?
Anyone other than me has some info on this ? I am not sure on this one .
Manish
if we open the account now.if there is change in tax rule i.e EEE in future.Wheter it will apply for previous investment in NPS ?
Harish
Yes it should
Manish
Answers to Questions:
1. I m not personally interested in NPS. Its like a government issuing ULIP’s or ULPP’s. But will there be any transparency in what the fund managers are investing in?
2. Government will need to give it EEE status. It would be an attractive option only if government makes it less complicated.
What do you guys say?
Sathya
Definataly there has to be transperancy , They have to declare the investments just like regular ULIP’s . Untill it becomes EEE , it would not be as much attractive as other options . But once New tax code comes in , it would be an attractive options then as everything will be taxable at the end .
Manish
NPS is also a good option. But it is in its childhood. So
as a planner I can say; Get your financial target located,
then have asset allocated, invest in NPS ( –%) and in
aggressive pension schemes (—%) of your yearly pension outgo.
Wait & watch for 3 years, then review. Thanks.
Sanghit
Thanks for your views
Manish
Could you please shed some light as to how there aggressive pension schemes operate ?
what if i resign the job befor retirement?how can i withdraw?
what if i posses two prans?how one can get de activated?
????
Rahul
I didnt get you , how can someone resign after retirement ?
manish
what will happen to my nps money if i resign from my govt job before retirement
Satish
NPS has nothing to do with that . NPS is another pension scheme. It has nothign to do with if you are a govt employee or not .
Manish
Thanks for the info manish…
I have a doubt though..if we are still awaiting the jury on the NPS, till then how should we plan for retirement…
Thanks
Hitesh
Hi Manish,
I working in a private company and my age is 30. If I opt for NPS and deposit 1000 per month for next 30 years and choose moderate yield moderate risk option, Can you please calculate for me, what amount I will get at the age of 60?
Regards,
Angela
Angela
It is mentioned at http://www.jagoinvestor.com/2009/05/video-post-on-basic-formula.html , I would encourage you to learn thing so that you can calculate things on your own , however here let me do that for you , so the only thing which you need to assume here is rate of interest which you would get , considering its invested in balanced funds, you can expect a return of 10% .
So tenure(t) = 30 yrs or 360 months
Rate(r) = 10% or 10/12 per month = .0083333 = 0.10/12
Amount(a) = 1000 per month
Final Corpus = a * (1+r) * [(1+r)**t - 1]/r
= 2279305
How ever , i would suggest better put it in pure equity which might look more risky , but considering its very long term , you can put it in pure equity , then you can expect 12% atleast , or why not put in pure diversified equity funds . you can then expect 13-14% .. which mean your money will grow to
3529913 (@12%)
5557055 (@14%)
Try to learn on your own all these stuff’s please , its for you
Manish
Dear Sir,
At the time of withdrawal, the amount is totally tax free ,then more people attract to this plan. For private employees this is not best, because their hardly earned money will get after retirement how much they deposited . For Govt. employees they will get double. This is not transperant. So that for private employees govt. will give some percentage of govt. contribution then more people attract to the plan.
maturity at the end can be can get taxable with new tax code coming in .
Manish
Dear Sir,
If I deposit 1000 pm and now my age is 47. After 60 years what pension I will get pm? I do not want any lumsum amount want some monitery help pm for rest of the life.
Regards,
KP Misra
KP
You have 13 yrs in hand , if you invest 1000 per month , you can generate around 3.75 lacs at the end of 13 yrs , assuming 12% return . Pension depends on the returns you get out of your corpus , at the moment , if you have 10 lacs you can expect 7.5k per month for rest of the life . Which means with 3.75 lacs after 13 yrs you should expect around 3-4k per month as monthly income , thats all .
Looks like you have lost the precious time of accumulation phase in your life , now you need to invest atleast 20-30k per month to generate a decent corpus size for retirement .
Manish
Good day Manish,
Superb information throughout all your articles. Kudos! It has immensely helped a novice like me to understand personal finance better.
I have a query & will be grateful if you answer it (Blame it all on insight provided by your literature
)
My father recently (Age 55) has recently opted for Bajaj Allianz Future Secure II– Pension plan (pure pension plan – option A). Payment chosen is 4Lac per year for 3 year term. I was skeptical about it as I would have liked if he had invested in Senior citizen plan’s offered by banks or a FD (given his age). Although I would not like to judge him by his investment rationale, is it justified at his age to opt for a pension scheme linked to the market? He has been a very conservative investor throughout his life investing in EPF’s,PPF , FD’s including some investment in direct equity. His retirement age is around 62 and the amount specified annually is well within his means of earning.
I would be awaiting your views on this investment.
Many thanks for the good work you have done so far.
Warm Regards,
Aditya S Pednekar
Aditya
I would say its not a wise decision for him to go for this pension plan . The point is he should have gone for Senior citizen scheme of Post office which provides 9% stable guaranteed return for next 5 yrs , which is the best stable return any person in his age group can get .The problem with pension schemes can be the charges , complexity . Even though he as a choice of putting all money in debt portfolio of pension scheme, its not worh the effort at this stage , after all you retire for leaving all those worries and tensions in life , and not back to look each day back in your retirement kitty and its performance
Manish
The major set back of this scheme is it does not have online premium paying facility and you have to make minimum four contributions per year. That means every quarter you need to go to bank or drop cheque. Currently ECS facility is provided by only Axis bank and cams.
Unlike you make Rs 30000 contribution, charges seem quite high.
-Raj
Raj
I didnt knew this . Not having online facility is not something which is desirable . I am sure it will happen in future .
Manish
POP can provide you an online payment facility. ICICI Bank does that for its account holders.
Overall the charges in the scheme are very high. At an annual investment of Rs 24000 the charges work out to 2%. A couple of questions on this site were asking for Rs 12000 annual contribution. The charges go up to 4%. This is criminal.
Also, one should NOT do a monthly investment in it. Do a quarterly investment. This is because every investment transaction will attract a charge of Rs 30 (Rs 20 at POP and Rs 10 at CRA).
Eventual tax treatment is also not a good indicator for investment if your horizon is closer to two decades. This is because tax laws are not stable and the DTC would have had many more releases by then.
Manish, Have been doing some sort of research on this subject. In my view taking the tier II probably scores over the MF\ULIPs over the charges. It is approx 0.0009% + allied charge. On a average it will come to approx 0.0008%. Additionally the investments are made in Nifty Stocks pretty much giving balanced returns. I also got to know from one of my well informed friends that the charges are going to come down since the subscriber base will cross 10 L soon. 10 Lakhs includes all the members ( govt as well). Am actually setting up this account today.
Prashanth
Actually there are two things which will matter in long term .
a) Charges : This is really a big thing, as its low in NPS , it will definately work in your favor .
b) How you use it : The most important aspect of market linked product is how you can handle the switching and do you do it at right time .
Other than this there are some issues like Taxability point which is not clear .
Manish
Prasanth,
Not sure what the charges are for TierII. I lost interest and steam after opening a Tier I account.
Two problems are there:
Tier II account can only be opened after you have opened a Tier I account.
In a Tier I account if you stick to the basics – 4 transactions worth Rs 6000 in all in a year – the charges for making the transactions itself work out to Rs 120 or 2% (Rs 20 at POP and Rs 10 at CRA X 4). I am not yet considering the fixed charges at all.
On Rs 6000 if you get a 10% return you will have Rs 600 in hand out of which the charges are
Rs 120 + Rs 350 = Rs 470 (at reduced rates [Rs 20 + Rs 6] X 4 + Rs 270 =Rs 374)
would be taken away as charges. Service charges are extra. Might as well put it in a long term FD and pay TDS.
The absolute charges make it a very silly scheme at lower levels of participation. If a larger sum is put in Tier I then a lot of people will find that they are not left with much for Tier II.
Also, study the charges of Tier II wrt to the amount you are likely to invest. I am sure the difference between T I and T II can’t be too much in terms of charges.
presentely i am in Agra and basically i am belong to Gorakhpur. i am interested to open a A/c in Agra will you give the name of POP /bank in which i do same .
sudhanshu
Sudhanshu
The banks are same which I have listed, you can choose any .
Manish
HI ALL
if i plan to deposite 4,50000 as n lumpsum amount as an pension scheme plan , after 3 years how much amount will be given per month.
Jo
It depends from pension to pension scheme, you can expect around 5% amount .
Manish
hey manish
can we have updated details on NPS as there is govt contribution of Rs 3000 etc. and your feedback/review/suggestion currently.
Raj
Yep , in the last budget they said that they will contribute 1k to each account for next 3 yrs.
Manish
Respected sir, I retired from pN Bank as an officer. I remained under suspension w.e.f 13/6/95 and after conducting departmental till retirement in Nov.1999.After conclusion of department enquiry, major punishment of compulsory retirement was given. Though I had opted for pension in 1996,which was duly acknowledged by branch & zonal office, but on retirement. PF (my & bank’s conribution) alongwith gratuity was paid. I filed my protests & asked for pensionary benefits, to which bank made no reply. Hence , writ petion was filed in 2001, which is still pending. As per pension regulation rule 22. ressignation, dismissal, removal or termination will forfiet entire past service.which is not my case.As per regulation 21, my suspension period may not be counted for qualifying service and period from my joining in 1971 to date of suspension may only be counted as qualifying service. Now in terms of regulation 33, an employee compulsorily retd. as a penalty,by the authority higher than authority competent to impose such penalty, may be granted pensionnot less than 2/3 and not more than full pension…In case lessor pension is allowed, board of directors are to be consulted before passing such lessor pension. Now my querry is in case I opt for pension under 9th. bipartite settlement, whether a fresh decision will be taken before making me eligible for full pension, or in the absence of any such order having been passed earlier at the time of passing order of compulsory retirement, no such fresh order can now be passed, and I shall be eligible for full pension. Kindly advise me in the matter.
WITH REGARDS, A K WADHERA
akwadhera0133@rediffmail.com
A.K Wadhera
This looks more of legal issue than pure personal finance issue , you should hire a lawyer
Manish
Hi,
Can you tell me about partial withdrawal in this scheme? Is it possible only at 60? It is 35 years away for me!!
Also I read it will come under EEE from 2011.
Thanks!!
Karthik
yes , its under EEE and withdrawal only at 60 .
Manish
Manish,
Do you have anyupdates for Viral questions at the start of the blog?
What happens to the corpus after the death of the spouse?
Thanks
manish,
is there any update in this regard ?
>>>the amount received at the end from NPS would be taxable..
is it still taxable ?
Prasad
No , it would be tax free now as per revised tax code .
Manish
Dear Sir,
I am a Central Govt Employee appointed in 2007 but dont have much knowledge about the NPS. I just want to know whether i will get a regular monthly pension or one time fixed amount after the retirement in NPS.
I have opted to invest only 10% (minimum limit) from my salary. should I have to increase it?
Regards
(Balbeer)
Balbeer
You will get a monthly pension . You can increase it if you dont want to take another instruments .
Manish
Manish,
i have a query regarding NPS Tier II account……will the investments in Tier II account, qualifies for the 80C deduction…..?
As they dont have lock in period in Tier II…….
Regards,
chvvrkch
No
It does not enjoy tax benefits , its a add on account which is voluntary savings facility for you. Your contributions and savings in this account will not enjoy any tax advantages. But you will be free to withdraw your savings from this account whenever you wish.
Manish
Thanks for your reply, Manish……..
Then if i invest in Tier II account, then is it taxable at the time of withdrawal or not? If taxable, on what basis tax has to be paid ?
I dont think there is enough clarity on that , atleast I dont have
Manish
Manish, I opened an account through South Indian Bank in my hometown in Kerala and since then I have struggled to find avenues to make my contributions to the account..There is no online option which is a major concern…And even banks and FIs seem to be clueless..
Remittances to the NPS Account is available only in select branches of the PoPs which means that you need to go hunting for branches where contributions are accepted..3 of the PoP SPs that I called up to inquire whether they take contributions to NPS had no clear about it..The nearest PoP-SP for me was SBH, Gokuldham but when i visited the branch, they had no idea of such a product. Even when I showed them my PRAN Card, they were clueless about the entire thing and I had to go back without making the remittance…
The PFRDA must first educate the PoPs first!!!!
NPS is something which is a half baked stuff right now , So yes there would be many things like this , For now you can limit your investments in NPS
Manish
Yes, the level of awareness at POPs is a problem. I went to the relevant POPs in Delhi and still had troubles with employees who were not confident of what they were doing. I finally settled for ICICI Bank for they have an online payment option.
Another thing that you will soon discover are the charges for making deposits. Do not, under any circumstances, exceed the 4 minimum per year condition. The ‘lowest cost scheme’ is not all that low cost.
Oh thats a nice thing to know
. thanks for the info
Manish
Hello Vikas,
Could you please ellobrate on your statement about exceeding contributions more than 4 times a year & subsequent charges ? What charges would be applicable then ?
I am in the process of opening an NPS for myself.
Regards,
Aditya
Aditya
There are manadtory 4 payments atleast under NPS right now . If you do more than that there might be extra payment charges which are unclear at this moment, I am not sure why you need NPS ? Why ? Read this : http://www.subramoney.com/2010/08/national-pension-scheme-nps-drawbacks/
Manish
Having technical problems – please excuse if reply appears twice.
Hi Aditya,
There are no extra charges for making more than 4 installments.
The charges for the account as per the PFRDA website are as follows – (http://pfrda.org.in/writereaddata/linkimages/Offer%20Document957798914.pdf —- go to page 5 of this pdf):
POP Charges / installment – Rs 10
CRA Charges / installment – Rs 20
Total Charges / installment – Rs 30
At a minimum of 4 installments per year you have to pay Rs 30 X 4 = Rs 120
Annual account maintenance charges (CRA) – Rs 350
Total = Rs 470 + service tax
Now if you are making large investments then it is fine. The charges are still insignificant and small. However, if you are thinking in terms… say… Rs 24000 p.a. then these charges come to more than 2% (at lesser amounts even more damaging).
Now consider a scenario of an SIP in this scheme. A monthly SIP will cost you – Rs 30X12 = Rs 360 and Rs 350 (annual charges) = Rs 710 + service tax.
Do the math according to your investment plans.
I am yet to include the .0009% fund management charges and custodial charges of .0075% or .05% – whatever these charges mean.
The less installments you pay the better it is. It is not a scheme for the small investor or an unorganized sector self employed person.
The worlds cheapest scheme is pretty expensive. To add to it the fund managers are lobbying for increasing the .0009% charges as well as the corpus has not grown as per expectation and they are not even covering their expenses (they claim).
Hello Vikas & Manish,
@ Vikas : Thank you for the detailed explanation. Clears-up couple of nagging doubts I had from long. It would be interesting to note how much the Govt relents to alter the charges in the near future due to persistance of the Fund managers.
@ Manish : The reason for my opening NPS account is just as a back-up for Pension planning. Currently I am filing my taxes as an NRI (as I work on oil rigs abroad), hence I am not allowed to invest in debt schemes like PPF or Savings certificates. I am contributing regularly to equity Mutual funds (although I must admit not on a monthly basis). Since your blog has pointed out that returns from Insurance/Endowment policies are way below either PPF or Equity mutual funds , the next best choice I saw was NPS , which has give returns in the region of 10% last 2 years or so. I did read Mr. Subra’s blog about NPS and the short coming.In one of his earlier blogs , he has advised against heavily investing in debt schemes (e.g PPF) for investors planning pension & promoted investing in Index funds. Its more like choosing the lesser of two evils, since Pension plans offered by private copanies charge in the excess of 2% AMC not mentioning other hidden charges ! Although I do believe IRDA has now made mandatory returns in the region of 4.5% for these schemes, but am sure they will find loopholes or way around by charging more.
As far as I can see, its a sad scenario where pension is concerned for un-organized sector like ours where employer cares a hoot about the employees.
Just read yesterday in one of the leading dailies, that there is a short-fall of a few thousand crores in the Employees Provident Fund scheme due to mis-management & corruption !
Warm regards,
Aditya
I have the following queries:
1) Is NPS listed among the approved Pension schemes (under the Direct Tax Code) wherein investment upto Rupees one lakh every year would be exempt from taxation?
2) If the answer is “yes”, then would you advise me to stop contributing into ULIP-based Life Insurance policies (I am not sure whether they would be treated as “pure” policies that allow exemption upto Rupees Fifty Thousand every year) from April 2012, and rather invest more in NPS (as of now I am investing the nominal Rupees 6000/- only)?
Riju
1) Yes
2) I would advise not to continue even ULIP’s . Are you able to utilize the power of ULIP’s ? You should rather buy pure term cover and use MF for investing .
Manish