May 29, 2013 2:00 pm
What is NPS in actual terms? It is beneficial to opt for it? Somewhere I read the contributions would be match by the Govt, is it true?
If so, it is advisable to use it a vehicle for Retirement apart from PF/PPF & MFs?
Dear Vinman, please check this for your satisfaction. The last Question in this link.
Dear Vinman, as far as I know NRI can open NPS account subject to RBI and FEMA guidelines. You should have an operational bank account in India to invest in NPS.
Dear Finnaive, by now you do have an idea of NPS. My counter question to you is – Are you planning to open a NPS account for yourself?
Can you tell if NPS account can be opened by an NRI ?
Options for building a retirement kitty are
Pure debt instruments such as the PPF, NSC and tax-saving FDs . They offer an assured return of around 8% in the long term.
Mutual Fund Pension Plans
Insurance Pension Plans
National Pension Scheme
Comparison of Retirement Options
Fund Management Cost: Mutual funds can charge up to 2.25% and ULIP Pension plans from life insurers can charge up to 1.35%, NPS charges just 0.25% as fund management fee. There is no fund management cost involved in case of EPF and PPF, as the funds are invested only in Government securities.
Equity exposure: There is a 50% cap on equity exposure in case of NPS whereas the EPF,PPF does not allow equity exposure at all. There are no equity exposure restrictions for other pension products.
Tax implications on Contribution : – NPS, EPF, PPF contributions are eligible for tax deductions under Section 80C up to an limit of Rs. 1 lakh. Contribution to Deferred Pension Plans eligible for tax deductions under Section 80CCC up to an overall limit of Rs. 1 lakh. This deduction is within Rs.1,00,000 limit of Section 80C and 80CCD(1).
Tax implications on Withdrawal: Maturity proceeds in case of PPF and EPF (if more than 5 years) are tax free. In case of Deferred Insurance Pension Plans, 33% lump sum withdrawal is tax free, but annuity is not tax free. NPS withdrawals are taxable, annuity is taxable. In case of mutual fund pension products are taxed as Long Term Capital Gains.
For more details you can read our article Saving For Retirement : Pension Plans,NPS,EPF,PPF
As subra often points out PPF is EEE for now. So 15-20 years from now no one can tell if NPS or PPF corpus will be taxable or not.
National Pension Scheme is a government approved pension scheme for Indian citizens in the 18-60 age group. While central and state government employees have to subscribe to NPS (it’s compulsory for them), it’s optional for others. NPS is India’s answer to the US’ retirement scheme-401(K).
Under NPS, two types of account would be available to people
Tier I : contribute into the pension account with restrictions on withdrawal.
Tier II: a voluntary saving account from which one is free to withdraw whenever he wishes.
An active Tier I account is a pre requisite for opening of a Tier II.
The government and employers will make no contribution to this account.
Swavalamban scheme or the NPS Lite :is the extension of the variant available to the government employees. The government contributes Rs 1,000 per year to the pension account in NPS Lite, making pension possible for the economically-disadvantaged.
For details on NPS you can read Understanding NPS
Each product have its pros & cons.
Advantage of long term products like NPS is that they can keep investors more active than mutual funds.But NPS have certain limitations considering – withdrawal,equity fund management and taxation.
My view on NPS limitations:
(P.S.: Post is written by investor type person and not expert type).
NPS is New Pension system. With effect from 2004, all central Government employees have to contribute to NPS. There is no statutory pension. There is a Pension Fund Regulatory Authority for regulating the scheme. Five fund Managers are there. It comprises of Tier-I and Tier-II schemes. The members have to contribute 10%. The registry is managed by NSDL. Minimum contribution is 500 per month and maximum Rs 6000 per year.
The information given above is not so elaborate. It is only a summary. To know more, just go to google and type nps. you will know more
This will give more details
Govt will match only contribution of govt employees.
Private employers (eg. Muthoot) can choose NPS and provided matching contribution.
If the DTC is implemented NPS will have tax advantages compared to other products.
There is no need to invest in it if one has MFs and PPF.
You can get some idea about returns here
Disclosure: I have mandatory NPS (85% debt and 15% equity) and I have got pretty good returns so far (Central govt). You can see returns for general subscribers.
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