The NPS is a low-cost retirement saving tool that supports you during your golden years when the regular flow of income stops. You can save a substantial amount for your retirement by investing regularly in NPS now.
For the uninitiated, NPS offers Tier I and Tier II accounts. Tier I is a mandatory pension account with certain withdrawal restrictions, while Tier II is an optional savings account with more withdrawal flexibility. Upon reaching the age of 60, a subscriber has to use at least 40 per cent of the NPS corpus to purchase an annuity from a life insurance company and can withdraw up to 60 per cent of the NPS corpus as a lump sum, which is tax-exempt.
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If a subscriber decides not to withdraw the entire NPS corpus at the age of 60, they can defer the lump sum withdrawal until the age of 70. However, during this period, they must purchase an annuity with at least 40 per cent of the corpus. In case of an early exit before the age of 60, the subscriber can withdraw only up to 20 per cent of the NPS corpus as a lump sum. The remaining 80 per cent of the corpus must be utilized to purchase an annuity, providing a regular income post-retirement.
Before you invest given its benefits here are some of the lesser-known facts about NPS that you know before signing on the dotted lines:
Fund management charges lowest at 0.03 per cent: NPS is one of the lowest-cost products, with fund management costs capped at 0.09 per cent. This percentage further reduces depending on the total asset under management (AUM) of the pension fund. For AUM up to Rs 10,000 crore, the maximum charges will be 0.09 per cent. From Rs 10,001 to Rs 50,000 crore, charges are 0.06 per cent; from Rs 50,001 to Rs 1,50,000 crore, charges are capped at 0.05 per cent, and for AUMs above Rs 1,50,000 crore, the charges are lowest at 0.03 per cent.
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Equity Exposure maximum to 75 per cent: NPS offers two choices: Active and Auto. Under the Active category, there are four funds to choose from – Equity or E, Corporate Debt or C, Government Securities or G, and Alternative Investment Funds or AIF. The maximum equity exposure under the E option is 50 per cent.
Whereas under the Auto option, you can have higher equity exposure up to 75 per cent, subject to your age. Auto choice gives you three options – Aggressive, Moderate, and Conservative, where the equity exposure is highest till 35 years at 75 per cent for aggressive funds. It reduces to 50 per cent for moderate investors and 25 per cent for conservative investors.
Same-day NAV through UPI: To avail of the same-day Net Asset Value (NAV), you can opt for Direct remittance (D-Remit) by directly transferring money from your bank account to the Trustee Bank (currently Axis Bank) without involving any intermediary service provider. D-Remit is an electronic system that enables you to get the same-day NAV for your NPS investment.
However, it’s essential to be aware that to receive the same day NAV, the cut-off time for fund receipt is 9.30 am. If funds are received after 9:30 am or on a non-working day such as Saturday, Sunday, or a public holiday, the NAV of the next working day will be applicable. The other modes of payment will take more time as T+ 2, wherein T is the date of fund receipt at the Trustee bank.
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The cheapest option is e-NPS: There are two ways by which one can open an NPS account: Point of Presence (POP) and Online (through eNPS). The cheapest way to open an NPS account is online. To open an NPS account online, a one-time account opening fee of Rs 400 + GST is required, payable at the time of your first investment. Subsequently, a convenience fee of 0.20% of the investment amount + GST, subject to a minimum of Rs 15 and a maximum of Rs 10,000, is applicable. How much are the charges offline?
Offers AIF option: NPS also gives its investors an opportunity to invest in Alternative Investment Funds or Scheme A. It presents an enticing prospect with investments in Alternative Investment Funds (AIF Category I and II), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), CMBS, and MBS, among others. All pension fund managers offer this option, but before getting lured by higher returns, it is essential to know that Scheme A is exclusively accessible to Tier-1 NPS investors and is not available under the Tier-2 account. Moreover, the auto option does not include Scheme A, and investors can allocate a maximum of 5 per cent of their portfolio to this scheme.
Pension Eligibility: To be eligible for a pension from NPS, you must have contributed for a minimum of three years, and your age should be above 60 years. Only after meeting these criteria, you can avail of the facility of receiving a monthly pension. Additionally, NPS subscribers should be aware that they can purchase multiple annuity schemes from the same life insurance companies. This flexibility allows them to diversify their investments across various schemes, reducing risk exposure and potentially maximizing the value of their investments compared to traditional instruments like PPF.
Portability: Last but not least subscribers can operate their account from anywhere, even if they change their city or employment. You can continue investing in NPS from any place without the fear of discontinuing if there is a change in city or place of employment. You only need to give your PRAN number for maintaining continuity.
