About National Pension System by IndianMoney.

com
What is the National Pension System (NPS)? It is a Pension Scheme launched by the Government of India on 1st April 2009. A person in the age group of 18 to 60 years can invest in this scheme. After the age of 60, one person can obtain a portion of the investment as a lump sum amount and the rest as a fixed monthly income (called as annuity) across his/her lifetime. The distinguishing feature of NPS is that it is a market linked scheme i.e. the money is invested in the stocks (equities) and bonds (debt). Long term investments in stocks and bonds usually outpace inflation. This is the reason why NPS has been created.

In structure the NPS is close to a ULIP (Unit Linked Insurance Policy) and Mutual Funds. But unlike ULIPS which has an insurance cover attached to it, the NPS doesnt have any insurance cover to it. Also NPS funds can charge a maximum of 0.25% of the amount as fund management charges in a year. This makes the NPS the cheapest market-linked financial product in the country.

Why should one take a National Pension System? Investing for retirement Investing in NPS can be considered as a safe. It is regulated by the Pension Fund Regulatory Development Authority (PFRDA). It is a transparent and has investing norms for fund managers whose performance and portfolios are regularly monitored by the NPS Trust under the overall supervision of the PFRDA One can decide the percentage of the corpus that goes into equity for aggressive investment and in corporate bonds and government securities for assured returns. The only limitation being the 50% cap on equity NPS gets tax benefits under Section 80CCD

Things to know about the National Pension System Tier I account: Tier-I is a basic pension account with restrictions on withdrawal. A person makes contributions for the retirement years till the age of 60. The funds in this account cannot be withdrawn till the age of 60 Years. At the age of 60 Years 40% of the amount is invested in an immediate annuity plan with the IRDA. The remaining amount is obtained as a lump sum or in a phased manner. If the funds in this account are withdrawn before the age of 60 Years, 80% of the amount needs to be invested in a life annuity plan with the IRDA. For a Tier I NPS account you need to contribute a minimum of Rs. 6,000 per year, and make at least 4 contributions in a year. The minimum amount per contribution can be Rs. 500.

Tier II account: Tier II account is a voluntary savings account. One can open a Tier-II account only if one has an active Tier-I account. A person is free to make withdrawals whenever they are required. There is no limit on the number of withdrawals that can be made from a "Tier II" account. A minimum balance of INR 2,000 needs to be maintained in this account.

Funds Transfers between Tier I and Tier II: Funds can be transferred from a Tier II account to the "Tier I" account. But no fund transfer is permitted from the "Tier I" account to the "Tier II" account.

How is the fund invested in the NPS? In the National Pension System funds are invested either under an Auto Choice option or an Active Choice option. Auto Choice: If an investor opts for the auto choice the selection of securities is made automatically based on age. The investment proportions are out of the hands of the investor; this would be 50 % in equity, 30% in corporate bonds and 20% in government 2

bonds up to the age of 35 Years. Beyond this age the investment proportion increases in government securities till the equity portion is as low as 10% at 55 years. Active Choice: Under the active choice option a person can invest in different classes of securities with a maximum permissible limit of 50% in equity and index funds. The investor can decide the proportion of investment in equity, corporate bonds and government securities.

Which are the 8 Funds Managers one can choose from? One can choose from one of the following eight as the fund manager to manage ones NPS investment
LIC Pension Fund SBI Pension Funds UTI Retirement Solutions HDFC Pension Management Co ICICI Prudential Pension Funds Management Co Kotak Mahindra Pension Fun DSP BlackRock Pension Fund Managers and Reliance Capital Pension Fund

How to open an NPS account? One can open an NPS account by going to the bank branches of the banks/insurance companies that are authorized to sell it To register for a NPS account one would need to fill up the prescribed application form and submit the necessary Know Your Customer (KYC) documents such as an Identity Proof, Address Proof, Date of Birth Proof, and Two Recent Color Photographs Permanent Retirement Account Number (PRAN) is a unique identification number that is issued on opening an NPS account

Few other things about NPS: Under Tier I account, one has to re-invest 40% of the fund value in an annuity plan. However one may choose to purchase an annuity for an amount greater than 40% In NPS, any premature withdrawal will lead to closure of the account. One can withdraw 20% of the corpus and the remaining 80% has to be compulsorily annuitized for the scheme to continue 3

On death the entire corpus will be handed over to the nominee. If there is more than one nominee the amounts will be distributed to nominees in the ratio as specified

Buying Tips for National Pension System: Do your research and select a Fund Manager with a proven track record Choose the automatic option if you are not comfortable with the active choice option Consider NPS as a retirement investment and therefore try not to make any premature withdrawal

Need More Assistance?

For any query related to finance or any kinds of investment and for FREE Expert Advice, just leave a missed call at 022-61816111 or visit our site www.indianmoney.com

We give useful tips on how not to get cheated by agents and provide a check list of things that you need to know before signing on the cheque. This is Absolutely Free and we dont charge for our education. Our mission is to create a financially literate India.