Demystifying NPS For You FAQs What is NPS? The acronym NPS stands for National Pension System this is a pension system operated by the Government of India. What was the rationale behind the implementation of NPS? The principal rationale behind the introduction of NPS was to develop a sustainable and efficient Voluntary Defined Contribution Pension System in India. The Pension Fund Regulatory and Development Authority (PFRDA) has been entrusted with the responsibility of regulating & managing the NPS. What are the inherent product features of NPS that distinguish it from other retirement products? It is the cheapest market linked retirement plan among all other retirement products that are currently available in the Indian financial markets. NPS provides a platform for savings to create a retirement corpus through a three-tier investment structure as follows:- Equity (E), Corporate Bonds (C), & Govt. Securities (G) Who are eligible for joining the NPS? Any citizen of India between the age group of 18-65 years is eligible to join the NPS. This facility has been extended to Non-Resident Indians also. What are the principal benefits of NPS? NPS offers several advantages which will help you build a sufficient retirement corpus:- Dual benefit of low cost and Power of compounding:- The account maintenance costs under NPS are the lowest as compared to similar pension products available in India. The retirement pension wealth accumulation grows over a period of time with a compounding effect and as the account maintenance charges are low, the benefit of accumulated pension wealth to the subscriber eventually becomes substantially large. Tax Savings: - Opportunity of additional tax savings up to Rs. 50,000/-. This benefit is over and above the Sec 80C limit of Rs. 1,50,000/-. You cannot enjoy this additional tax benefit under any other retirement product such as EPF, PPF, etc. Tax Exemptions: - The retirement corpus used for buying an annuity is completely exempt from tax.
Liquidity Constraints: - No withdrawal is allowed before the retirement age. This apparent lack of liquidity, which is inherent in the product, is actually a blessing in disguise as you stand to benefit from letting your corpus grow without dipping into it for varied needs a retirement product in the true sense of the word. Simple: Opening an account with NPS provides a Permanent Retirement Account Number (PRAN), which is a unique number and it remains with you throughout your lifetime. The scheme is structured into two tiers: Tier-I account: This is the non-withdrawable permanent retirement account into which the accumulations are deposited and invested as per the option selected by you. Tier-II account: This is a voluntary withdrawable account which is allowed only when there is an active Tier I account in your name. The withdrawals are permitted from this account as per your needs when claimed. Portability: - NPS provides seamless portability across jobs and across locations, unlike all current pension plans, including that of the EPFO. This essentially paves the way for hassle-free arrangement for individual subscribers like you. Well-Regulated:- NPS is regulated by PFRDA, with transparent investment norms, regular monitoring and performance review of fund managers by NPS Trust. Your invested money is therefore in safe hands. Flexibility: - NPS offers a range of investment options and choice of Pension Fund Manager (PFMs) for planning the growth of your investments in a reasonable manner and see your money grow. You can switch over from one investment option to another or from one fund manager to another subject to prevailing regulatory restrictions. The returns are totally market-related. What is the process for joining NPS? You can open an NPS account with entities known as Point of Presence (POP). A number of banks and financial institutions have enrolled as POP s. The authorized branches of a POP basically serve as the collection points. For details of POP s, simply visit the official website of the Pension Fund Regulatory and Development Authority (PFRDA). What are the documents needed for opening an NPS account? You would be required to fill the Subscriber Registration Form and submit it along with the documents such as valid Proof of identity, Proof of address, etc. to the POP. Alternatively, you can also enrol for NPS through the online application mode from the convenience of your home / office. Your e-kyc will be done through Aadhaar (OTP based authentication). Am I permitted to open multiple NPS accounts? No, you cannot open multiple NPS accounts. Only a single account is permitted per person.
What is the minimum contribution required under NPS? You are required to contribute a minimum of Rs 1,000 every year in your Tier-I account in a particular financial year (excluding charges and taxes). If you are not able to fulfill this requirement, your account will be frozen. What is a Permanent Retirement Account Number? Every NPS subscriber is issued a card with 12-digit unique number, which is referred to as the Permanent Retirement Account Number (PRAN). What is the meaning of Tier-I & Tier-II accounts? NPS offers maintenance of two types of accounts: Tier-I and Tier-II accounts. Tier-I is a mandatory account, whereas Tier-II is voluntary. Without a Tier-I account, you cannot open / operate a Tier II account. Further, you cannot withdraw the entire money from Tier-I account till you reach the age of 60 years. Even on retirement, there are restrictions on withdrawal on the Tier-I account. On the other hand, you have an option to withdraw the entire corpus from your Tier-II account. Which are the different investment choices available? Under NPS, how the money is invested will depend upon your own choice. NPS offers a number of funds and multiple investment options to choose from. In case you do not want to exercise a choice, your money will be invested as per the Default choice of Moderate Life Cycle Fund under Auto Choice" option, where your money gets invested in various type of schemes as per your age. The NPS offers the following broad 2 investment choices:- (A) Active Choice - Individual Funds (Asset Class E, Asset Class C, Asset Class G and Asset Class A) You have the option to actively decide as to how your NPS pension wealth is to be invested in the following three options:- Asset Class E - Investments in predominantly equity market instruments. Asset Class C - Investments in fixed income instruments (other than Government securities) Asset Class G - investments in Government securities. Asset class A - Investment in Alternative Investment Schemes including instruments like CMBS, MBS, REITS, AIFs, InvIts etc. You can choose to invest your entire pension wealth in C or G asset classes and up to a maximum of 50% in equity (Asset class E) and upto a maximum of 5% in Asset class A. You can also distribute your pension wealth across E, C, G and A asset classes, subject to any conditions as may be prescribed by PFRDA. (B) Auto Choice - Lifecycle Fund NPS offers an easy option in case you do not have the required knowledge to manage your NPS investments. If you do not want to exercise any choice as regards asset allocation, your funds will be invested in accordance with the Auto Choice option.
In this option, the investments will be made in a Lifecycle Fund. Here, the proportion of funds invested across the three asset classes will be determined by a pre-defined portfolio (which would change as per your age), with the investment in Asset Class E decreasing and in Asset Classes C & G increasing with your age. Three Life Cycle funds are available under this Auto Choice:- (i) LC75 Aggressive Life Cycle Fund: In this Life Cycle Fund, the exposure in Equity Investments starts with 75% till age 35 and gradually reduces as per the age of the subscriber. (ii) LC50- Moderate Life Cycle Fund: In this Life Cycle Fund, the exposure in Equity Investments starts with 50% till age 35 and gradually reduces as per the age of the subscriber. (iii) LC 25- Conservative life cycle fund: In this Life Cycle Fund, the exposure in Equity Investments starts with 25% till age 35 and gradually reduces as per the age of the subscriber. The default Auto Choice, if the subscriber is not choosing any of the above options, is Moderate Life Cycle Fund. Who is responsible for managing your money invested in NPS? The money invested in NPS is managed by PFRDA-registered Pension Fund Managers. Currently, there are eight Pension Fund Managers:- ICICI Prudential Pension Fund, LIC Pension Fund, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund, SBI Pension Fund, UTI Retirement Solutions Pension Fund, HDFC Pension Management Company, and Birla Sun life Pension Management Ltd You are permitted to change your Pension Fund Manager. What are the regulations for withdrawing my money from NPS? Upon attainment of the age of 60 years : At least 40% of your accumulated pension wealth needs to be utilized for purchase of an annuity providing for a monthly pension and the balance is paid as lump sum payment to you. In case the total accumulated corpus is less than Rs. 2 Lacs, you may opt for 100% lump sum withdrawal. However, you have the option to defer the lump sum withdrawal till the age of 70 years. You also have the option to continue contributing upto the age of 70 years. This option is required to be exercised upto 15 days prior to the completion of 60 years of age.
At any time before attaining the age of 60 years: The subscriber may exit from NPS before attaining the age of 60 years, only if he has completed 10 years in NPS. At least 80% of the accumulated pension wealth of the subscriber needs to be utilized for purchase of annuity providing for monthly pension to the subscriber and the balance is paid as a lump sum payment to the subscriber. In case the total accumulated corpus is less than Rs. 1 Lac, the subscriber may opt for 100% lump sum withdrawal. What happens if the subscriber dies before the retirement age? In such an unfortunate event, option will be available to the nominee to receive 100% of the NPS pension wealth in lump sum. However, if the nominee wishes to continue with the NPS, he/she shall have to subscribe to NPS individually after following due KYC procedure. PFRDA has entrusted the responsibility of receiving, processing and settlement of all withdrawal claims made to Central Recordkeeping Agency (CRA). Currently, NSDL e-governance Infrastructure and M/s Karvy Computershare Private Limited are carrying out activities of CRA. CRA has created a special NPS Claim Processing Cell (NPSCPC) for this purpose for handling all types of withdrawal claims. The CRA will monitor the performance of NPSCPC on the withdrawal processing as per the instructions provided by PFRDA in this regard. Currently, the NPSCPC is fully functional. The subscribers can submit their claims online for withdrawal from NPS. How do I withdraw money from NPS? You would be required to submit the withdrawal application to the POP along with relevant documents. POP would authenticate the documents and forward them to Central Record-keeping Agency (CRA). CRA would register your claim and forward you the application form along with details of documents that need to be submitted. Once you complete the necessary procedure, CRA processes the application and settles the account. What are the documents to be submitted alongwith the withdrawal forms? You have to submit the following documents along with the withdrawal forms :- 1. Original PRAN Card 2. Valid proof of identity 3. Valid proof of address 4. A copy of a cancelled cheque leaf What is an annuity? An annuity provides a regular income at a specified rate for a specified period chosen by you. In NPS, you are required to use at least 40 per cent of the corpus to buy an annuity from the empanelled Annuity Service Provider. You can choose an annuity option to ensure a regular income after retirement.
How would the annuity income be taxed? The annuity income would be added to your income and taxed as per the Income Tax slab applicable to you. Are the returns under NPS guaranteed? If not, what returns can I expect from this system? No, returns under the NPS are not guaranteed as they are market linked. The returns generated will depend upon a number of factors such as the expertise of the Fund Manager, the investment scheme opted for, etc. What are the charges involved? NPS offers Indian citizens a low cost option for planning their retirement. It is perhaps the world s lowest cost retirement savings product. Schedule of charges is as under:- Intermediary Charge Head Service Charges* Initial Subscriber Registration Rs. 200/- Charges by SBICAP Securities Ltd Point Of Presence - POP (Maximum Permissible Charge for each Subscription) Initial Contribution Upload Any subsequent transaction involving contribution upload 0.25% of the initial contribution amount from subscriber subject to a minimum of Rs. 20/- and a maximum of Rs. 25,000/- 0.25% of the initial contribution amount from subscriber subject to a minimum of Rs. 20/- and a maximum of Rs. 25,000/- Any other transaction not involving a contribution (non financial transaction) from subscriber Rs. 20/- PRAN Opening Charges Rs. 39.36/- M/s Karvy Computershare Pvt Ltd (KCRA) Annual PRAN Maintenance cost per account Rs. 57.63/- Charge per transaction Rs. 3.36/- Custodian PF Asset Maintenance (Per Annum) Investment Management (Per Annum) 0.0032% of AUM 0.01% of AUM Through adjustment in NAV NPS Trust Trustee Bank Reimbursement of Expenses Trustee Bank charges 0.01% of AUM Through adjustment in NAV No charges levied by Trustee Bank Service tax and other levies, as applicable, will be levied as per the existing tax laws. There are no additional CRA charges for the maintenance of Tier II account. Also, please note that the fee structure may change from time to time as may be decided by PFRDA.