Thread: The New National Pension Scheme
- 2nd May 2009 #1
The New National Pension Scheme
The PFRDA has opened the National Pension Scheme (NPS) to the Citizens of India. The following are the basic details in common-manís terms.
1. Methodology and Authorities Involved
The concept basically is a combination of a Mutual Fund (Systematic Investment Plan) and Annuity purchase from Insurance Company, with a Central Recordkeeping Authority facilitating the choice to the Investor to shift from one Fund Manager to another and between Investment Portfolios while continuing with the same corpus during the Mutual Fund phase.
The Mutual Fund phase would come to an end at the attaining of 60 years of age of the Investor (or earlier if so desired) when the Investor would have to compulsorily withdraw at least 40% (80% in case of earlier exit) of the Mutual Fund Corpus and purchase a lifetime Annuity from any of the approved Life Insurance Companies. The balance amount of the corpus can be withdrawn from the Mutual Fund immediately or in a phased manner before the Investor attains the age of 70.
The authorities involved are
Mutual Fund Stage:
Central Record Keeping Agency: For maintaining the database and corpus details of Individuals and would also allot the Permanent Retirement Account No. (PRAN) and Telephone PIN (T-PIN) to the investor. Presently, NSDL is chosen as the CRA.
Custodians: The Authority who would be actually maintaining the Assets.
Pension Fund Managers(PFM): The people who would actually manage the Funds and take the investment decisions. Presently there are six Mutual Fund Co.s chosen for this purpose (each a special subsidiary of the main Co. created exclusively for managing the Pension Funds), ICICI Prudential, IDFC, Kotak Mahindra, Reliance Capital, SBI Capital and UTI AMC. The Investor has the option (once a year) to make the switch from one Fund Manager to another.
Point Of Presence(POP): The link through which the Investor would open the Account and deposit funds. The following are presently chosen as POP Service Providers; Allahabad Bank, Axis Bank, Central Bank of India, Citibank, Computer Age Management Services, ICICI Bank, IDBI Bank, IL&FS Securities Services, Kotak Mahindra Bank, LIC, Oriental Bank of Commerce, Reliance Capital, SBI & its 6 associates, South Indian Bank, Union Bank of India, UTI AMC.
Trustee Bank: The back end Bank facilitating transfer of funds from POP to PFM.
Annuity Service Provider(ASP): The Life Insurance Company who would provide the monthly annuity based pension. The Investor is required to compulsorily hand over 40% of the Mutual Fund corpus as available at the age of 60 years. He can also purchase annuity upto 100% of the Mutual Fund corpus.
2. Eligible persons
Indian Citizen (resident or non-resident) within the age group of 18 to 55, subject to compliance of RBI KYC norms. One person can have only one account.
3. Fund Deposit Option
An investor needs to make a minimum of 4 deposits in a year with a minimum of Rs.500 per deposit subject to a minimum deposit of Rs.6000 per year. There is no maximum limit to either the amount of deposit or the number of deposits. Payment can be made by Cash, Local Cheque or Demand Draft.
4. Fees and Charges
Initial Onetime Charges:
Rs.90 service tax (approx. Rs.100 in total at present rates
Rs.350 plus 0.0509% of corpus value Plus service taxes. (Approx Rs.386 0.056% of corpus value)
Rs. 30 plus service tax (say approx Rs.33 in total) per transaction.
Transaction for this purpose would include deposits, any change requests, withdrawal request, printed statement request and any other transaction subsequently notified.
In case the Investor fails to meet any of the minimum deposit criteria, a default penalty of Rs.100 p.a. would be levied.
5. Fund Investment Options
The Investor is allowed 2 choices is respect of the type of investments to be made with his deposits.
The Investor is provided with three Classes of Investment . E- Equity (High Risk/Return), C- Commercial papers of mainly fixed return nature other than Govt. Securities (medium risk/return) G- Govt. Securities (low risk/return).
The investor has to option to specify any percentage combination among the three (incl. 100% in C or G) subject to a maximum of 50% for E and also indicate the choice of the PFM for this purpose. The investor has the option to annually revise the ratio and/or PFM as per his own evaluation.
In case the investor does not want to exercise the Active Choice option, a predetermined ratio would be allocated to his portfolio based on his age starting with 50% E, 30% C and 20% G for persons less than 35 years which would be gradually revised every year to 10% E, 10% C and 80% G by the time he attains 55 years of age. However, he need to indicate the choice of the PFM for this purpose. The investor has the option to annually revise the PFM as per his own evaluation.
6. Risk Profile of Investments
The Scheme does not provide any guaranteed returns. It is based on Mutual Fund concept. The benefits would depend on the performance of the individual fund managers and could differ even between the fund managers.
The Investor can continue with the same NPS-PRAN from any city/town in India by changing his choice of POP-SP.
3 & 4 read together implies that if an investor is investing only the minimum amount of Rs.6000 (in instalments of Rs.500 each month) approximately Rs.786 (about 13%) would be deducted for charges and the balance amount would be invested. However, if he makes quarterly deposits of Rs.1500, Rs.522 (about 9%) would be deducted. In addition, 0.056% of earlier yearsí investments would also be deducted, however, the returns generated would be utilised for this purpose.
For higher amount of annual deposits, the percentage would significantly come down due the partly fixed nature of annual charges. Like, if investment is made for Rs.10000 per quarter, the total charges would be Rs.541 (about 1.5%).
Since there is a per transaction charge, it would be advisable to make only quarterly deposits. For a small investor who invests only the minimum amount, this may work out to be costlier than a normal mutual fund.
However, it offers a good option to easily switch from one fund manager to anothter and also from one security mix to another.
For further details please visit
Welcome to CRA
- 2nd May 2009 #2saurav_kGuest
Useful info. Reps Given.
- 2nd May 2009 #3
- Join Date
- Aug 2008
Good Info. Repo given.
- 25th June 2009 #4
Thanks for sharing this useful info on national pension scheme.
- 8th July 2009 #5
Update: Budget 2009 Recomendations for NPSThe New Pension System (NPS) has become operational since 1st January, 2004 and is mandatory for all new recruits to the Central Government service from 1st January, 2004. Since then it has been opened up for employees of State Government, private sector and self employed (both organised and unorganized). NPS Trust has been set-up on 27th February, 2008 as per
the provisions of the Indian Trust Act, 1882 to manage the assets and funds under the NPS in the interest of the beneficiaries.
With a view to ensure that tax treatment of savings under this system is in synchronised with the “exempt-exempt-taxed” (EET) method and that there is no incidence of taxation at the accumulation stage, it is proposed to make the NPS Trust a complete pass-through in so far as taxation is concerned. Therefore, it is proposed to,—
(i) insert a new clause (44) in section 10 of the Income-tax Act so as to provide that any income received by any person on behalf of the New Pension System Trust established on 27th day of February, 2008 under the provisions of the Indian Trust Act of 1882 shall be exempt from income tax;
(ii) amend section 115-O to provide that any dividend paid to the NPS Trust shall be exempt from Dividend DistributionTax;
(iii) amend Chapter VII of Finance (No.2) Act, 2004 to provide that all purchases and sales of equity and derivatives by the NPS Trust will also be exempt from the Securities Transaction Tax; and
(iv) amend section 197A to provide that the NPS Trust shall receive all income without any tax deducted at source.
The tax benefit under section 80CCD of the Income-tax Act, 1961 was hitherto available to “employees” only. However, the NPS now has been extended also to “self-employed”. Therefore, it is proposed to amend sub-section (1) of section 80CCD so as to extend the tax benefit thereunder also to “self-employed” individuals.
It is also proposed to amend the Explanation to the said section to provide that for the purposes of the said section the assessee shall be deemed not to have received any amount in the previous year if such amount is used for purchasing an annuity plan in the same previous year.
These amendments will take effect retrospectively from 1st April, 2009 and will, accordingly, apply in relation to assessment year 2009-2010 and subsequent years.
> the contributions made to the NPS is now deductible from Gross Income for Tax purposes.
> the value addition of the fund is also exempt from tax
> the lump-sum payment received at the end of the term is exempt from tax, provided the same is converted into an annuity
> Only the monthly pension received against the annuity would be taxable.
- 5th September 2009 #6
- Join Date
- Sep 2009
Nice post regarding NPS & its good that government is stepping toward flourishing insurance sector. But I think there’s also a need of online tool like this which can help people to plan their insurance.
Last edited by Rameshjeee; 5th September 2009 at 06:52 PM. Reason: Adverstisement links not allowed.
- 6th May 2012 #7
There has been a few changes in the last two years.
1. The fixed annual charge has been reduced Rs.225 plus service tax i.e. approx 252
2. The minimum transactions have been reduced to 01 and the per transaction charges reduced to Rs.25 plus tax i.e. Rs.28.
So effective minimum annual cost now reduced to Rs.280 from earlier 517.
ICICI Direct is now also providing the facility of applying online and making online deposit through their platform.
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