NPS is available to all citizens of India with effect from 1st May 2009 (Other than Government employees already covered under NPS). Under NPS two types of accounts are available and the subscribers have the option to actively decide how their contribution is to be managed in the following three options.
Who can join?
- Asset Class E
- Asset Class C
- Asset Class G
Who cannot join?
- The subscriber should be a citizen of India whether resident or non-resident and age between 18-60 years on the date of submission of his/her application to Point of Presence (POP)/Point of Presence - Service Provider (POP-SP).
- The subscriber should comply with the Know Your Customer (KYC) norms as detailed in the Subscribers Registration Form. All the documents required for KYC compliance need to be mandatorily submitted.
The following applicants cannot join:
- Undischarged insolvent: Individuals who are not granted an ‘order of discharge’ by a court.
- Individuals of unsound mind: An individual is said to be of unsound mind for the purposes of making a contract if, at the time when he makes it, he is incapable of understanding it and of forming a rational judgment regarding its effect upon his/ her self-interest.
- Pre-existing account holders under NPS.
Under NPS following two types of accounts will be available:Tier - I
Subscriber shall contribute their savings for retirement into this non-withdrawable account. Tier-I account available from 1st May, 2009.Contribution
Subscribers are required to make their NPS contribution to Tier - I, subject to following conditions:
Minimum amount per contribution - Rs 500
Minimum total amount of contribution per year - Rs 6000.
Minimum number of contributions made each year - 1 Tier - II
This is a voluntary savings facility. Subscriber will be free to withdraw their savings from this account whenever he/she wishes. The facility of Tier-II account is being offered from 1st December, 2009. This account would enable the existing PRAN holders to build savings through investments over & above those in the Tier - I account. An active Tier-I account will be a pre-requisite for opening of a Tier-II account.Key Features of Tier-II account
1. No. additional CRA charges will be levied for account opening & annual maintenance in respect of Tier-II.
2. There will be no limits on the number of withdrawals.
3. There will be facility for separate nomination and scheme preference in Tier-II.
4. The subscriber would have the same choice of PFMs and schemes as in the case of Tier-I account in the unorganized sector.
5. Contributions can be made through any POP/POP-SP.
6. There will be facility of one-way transfer savings from Tier-II to Tier-I.
7. Bank details will be mandatory for opening a Tier-II account.
8. No separate KYC for Tier-II account opening will be required; the only requirement is a pre-existing Tier-I account.Contribution
Minimum contribution at the time of account opening - Rs. 1,000
Minimum amount per contribution - Rs 250
Minimum account balance at the end of financial year - Rs. 2,000
Minimum number of contributions made each year - 1
(Minimum one contribution in case a subscriber joins in the last quarter)
Penalty of Rs. 100 to be levied on the subscriber for not maintaining the minimum account balance and/or not making the minimum number of contributions.Investment FeaturesNPS offers subscriber two approaches to invest their moneyActive Choice:(Individual Funds)
The subscriber will have the option to actively allocate his contribution among the three asset classes:
1.Asset Class E: The Investment in this class would be subject to cap 50%. It would be invested in shares of the companies which are listed on Bombay Stock Exchange or National Stock Exchange and on which derivatives are available or are a part of BSE Sensex or Nifty 50 Index.
2. Asset Class G : Investment would be in Central Government Bonds and State Government Bonds.
3.Asset Class C : Investment would be in Credit Risk bearing fixed income securities other than Central and State Government Bonds. Auto Choice : (Lifecycle Fund)
In case the subscriber does not exercise any choice as regards asset allocation, the contribution will be invested in accordance with the ‘Auto choice’ option. In this option the investment will be determined by a predefined portfolio. At the lowest age of entry (18 years) the auto choice will entail investment of 50 % of pension wealth in “E” Class, 30% in “C” Class and 20% in “G” Class. These ratios of investment will remain fixed for all contributions until the participant reaches the age of 36. From age 36 onwards, the weight in “E” and “C” asset class will decrease annually and the weight in “G” class will increase annually till it reaches 10% in “ E”, 10% in “C” and 80 % in “ G” class at age 55as in the Table below :
||Asset Class E
||Asset Class C
||Asset Class G|
|up to 35 years
The permitted fraction, as mentioned above, is expected to be maintained at that level at all points in time. However, the amount of funds invested in that asset can differ from the Specified weight by no more or less than 5% for purposes of portfolio balancing. Exit Options
Subscriber can withdraw on attaining the age of 60 years and upto 70 years from the pension system. At exit, thesubscriber would be required to invest at least 40 percent of pension wealth to purchase a life annuity from any IRDA-regulated life insurance company. The remaining pension wealth can either be withdrawn in a lump sum on attaining the age of 60 or in phased manner between age 60 and 70 at the option of the subscriber.
An unfortunate event like death of subscriber due to any cause, 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 norms.
Any subscriber desires to withdraw before 60 years of age, He/she would be required to invest at least 80% of the pension wealth to purchase a life annuity from any IRDA-regulated life insurance company. Rest 20% of the pension wealth may be withdrawn as lump sum.Tax Benefits
Money withdrawn from the scheme will continue to make it liable for tax, although contributions and returns are tax free. Known as the exempt-exempt-taxed (EET) regime, the amount would be taxed at the time of withdrawal. NPS will not attract any Security Transaction Tax (STT) and Dividend Distribution Tax (DDT), with this the yield can be increased to the extent STT and DDT. Cost Structure
NPS offers Indian citizens a low cost option for retirement planning. The world’s lowest cost money managers managing wealth, makes pension funds under NPS.
The following are the charges:
||Method of Deduction |
||PRA Opening charges
Through cancellation of units
Annual PRA Maintenance cost per account
Charge per transaction
(Maximum Permissible Charge for each subscriber)
Initial subscriber registration and contribution upload
To be collected upfront
Any subsequent transactions
0.25% of contribution subject to a minimum of Rs. 20 and maximum of Rs. 25000
Through NAV deduction
Custodian(On asset value in custody)
Asset Servicing charges
0.0075% p.a for Electronic segment & 0.05% p.a. for Physical segment
Through NAV deduction
Investment Management Fee
Through NAV deduction
# Service tax and other levies, as applicable, will be levied as per the existing tax laws.