New Pension Scheme (NPS)
New Pension Scheme popularly known as NPS is a pension scheme introduced by Government of India from 1st April, 2009 for employees of private sector, self employed and extended it to everyone in the country. NPS is regulated by Pension Fund Regulatory and Development Authority's (PFRDA). NPS offered a great flexibility to its investers in terms of investments.
Type of accounts:
There are two types of accounts in NPS namely Tier I and Tier II account.
Tier I account: This is non withdrawal account. That means one only get our invested money withdrawal at attaining retirement age. Tier I account is compulsary. At attaining retirement age one have to invest at least 40% in an annuity with IRDA; the remaining can be withdrawn in lump-sum or in a phased manner.
Tier II account: This is with withdrawal acount. That means one can withdraw our money at any time, a minimum of Rs2000 is to be maintained in the account. This account is optional. To open Tier II account one must have Tier 1 account. It is possible to transfer money from the Tier II account to Tier I account, but not from Tier I account to Tier II account.
Investment Classes in NPS:
There are three investment classes in NPS:
1. Class G: Will only invest in Central and State government bonds.
2. Class C: Fixed income securities of entities other than the government
3. Class E: Investment in equity related products
Important Terms of NPS:
1. Permanent Retirement Account Number (PRAN): This is the permanent number given to every investor who opens NPS account. It is a unique 16 digit Permanent Retirement Account Number. This number remain fixed irrespective of any other changes like change of jobs, state etc. of the investor.
2. Pension Fund Managers (PFMs): These are the fund managers who will manage our investment in NPS. List of present fund managers are as follows:
a. ICICI Prudential Life Insurence Company Limited
b. IDFC Asset Management Asset Management Company Limited
c. Kotak Mahindra Asset Management Company Limited
d. Reliance Capital Asset Management Company Limited
e. SBI Pension Funds Limited
f. UTI Retirement Solutions Limited
g. LIC Pension Fund Limited
3. Points of Presencs (PoPs): It is the first point of interaction. Presently there are 22 registered PoPs, which have authorised branches to act as collection points and extend services to customers.
4. Central Recordkeeping Agency (CRA): This is the back office for maintaining records, administration and customer service functions. National Securities Depository Ltd (NSDL) has been designated the CRA for NPS.
How to open NPS account:
To open NPS one has to visit a point of presence (PoP), fill up the prescribed form with the required documents. Once registered, the Central Recordkeeping Agency (CRA) will send a Permanent Retirement Account Number (PRAN), along with telephone and internet passwords.
Benefits at retirement:
At 60, one has to use at least 40 per cent of your accumulated savings to buy a life annuity from an insurance company. A phased withdrawal is also allowed but the lump sum benefit has to be availed of before 70 years.
If one wants to exit the NPS before 60, one has to invest 80% of accumulated saving to purchase a life annuity from IRDA regulate life insurer.The remaining 20% may be withdrawn as lump sum.
Cost as compared to other investment option:
NPS is very cheaper in terms of investment fee as compared to any other investment plan or schemes like pension funds or mutual funds.
New Pension Scheme (NPS)
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