7 facts about New Pension Scheme in India (NPS)
Pension Scheme in India
We have discussed about the best tax saving schemes in India in our previous week article. Many people in India may not be aware that they can get tax benefit under section 80CCD (2) by investing in New Pension Scheme which is one of the option for investment plan for retirement.
What is New Pension Scheme?
Govt. of India launched new pension scheme in Apr 2009. The purpose of this scheme is to promote security of income to its subscribers in old age. It helps to save for life after retirement + it provides good returns as it is market driven.
7 facts about New Pension Scheme in India
- Intermediaries for this scheme: There are 3 intermediaries here. First one to collect your contribution amount, second is a fund manager who invests the money according to your investment decision and third is the person to keep record of your investments.
Selection of Fund Manager : An investor can select the fund manager from any of the below 7 institutions. However he or she can change the fund manager once in a year (if required).
- UTI Retirement Solutions Ltd
- SBI Pension funds Ltd
- Life Insurance Corporation of India (LIC)
- ICICI Prudential
- Kotak Mahindra
- Reliance Capital
Investment mix: An investor can choose the Active or auto choice (investment mix). In case of active choice, he need to pick up the investment mix of
- Equity (High risk and high returns) – Capped to maximum of 50% of an individual contribution
- Corporate and Gilt funds (Medium risk and medium returns; Low risk and low returns)
- Who can invest: Anyone who are in the age group between 18 to 60 can join this new pension scheme
- Investment amount: Minimum amount is Rs 6,000 per annum (Additionally Rs 500 charged per transaction) and no maximum limit. However tax exemption would be up to 10% of basic salary (Basic salary + Dearness Allowance)
- Withdrawals: We cannot withdraw entire amount at the time of retirement. An individual can withdraw only 60% of the contribution during retirement. However you can open Tier-2 account wherein you can withdraw the contributions from tier-2 account any time. However you need to have Tier-1 account before you open Tier-2 account. The balance 40% needs to be invested by purchasing an annuity plan from IRDA. Pension would start at the age of 60
- Tax benefits: For salaried individuals, the scheme needs to be incorporated by the company in which he or she is working. If not, the individual can request the company to incorporate this in their salary structure. An individual can contribute up to 10% of basic salary (Basic salary + dearness allowance only) to New pension scheme. The amount contributed would be deducted directly from total taxable income. Hence if an individual is falling under tax bracket of 20%, he would straight away get 20% rebate of his total contribution. E.g. an individual taxable income is Rs 8 lakhs and the basic salary is Rs 6 lakhs + other allowances of Rs 2 lakhs, the maximum he can contribute to his pension scheme is Rs 60,000 (10% of basic salary). If he is falling under 20% tax bracket, he would get Rs 12,000 (Rs 60,000 x 20%) as tax reduction from his total tax. His net outflow would be only Rs 48,000 for that year (Rs 60,000 minus tax benefit Rs 12,000).
Conclusion: There are various investment opportunities for retirement investment plans which provide annualized returns 6% to 8%. In case you are a moderate risk taker, choose an investment mix suitable for you and invest in New Pension Scheme. In longer run, we feel that this would be a good investment option for retirement planning.
Readers, what is your opinion about NPS? Do you have any other better investment options for retirement investment plans?
If you found this article is good, share the link in Twitter/Face book. The links are provided below.
- Quant Dynamic Asset Allocation Fund NFO – Issue Details, Risk Factors and Review - March 22, 2023
- Axis S&P 500 ETF Fund of Fund NFO – Should you invest? - March 18, 2023
- Udayshivakumar Infra IPO Review – Should you Invest? - March 16, 2023
My current ctc is 6 lacs and i have
1. LIC term plan
2. PPF contibution i make
3. 2 Sip of 2k each i have started
SHould i invest in NPS and how much should be the product mix and is there any transaction or deposit charges in NPS
I would like to join NPS .
But a little bit confusion in selecting the Fund Manager.
In the given 7 fund managers – which one will be best to choose??
Please share your ideas…
i have paid 33000 yearly for 3 year for jeevan saral LIC policy now i donot want to pay anymore in further year. The maturity is after 20 year.if i donot surrender the policy can i take benefit of my deposited amount.
Thanks for sharing valuable information. I am in a dilemma for investment that can save my tax today as well as I can get good guranteed returns. I already have a LIC policy of 25,000. Now my intention is to save money for retirement plans. I am thinking about two options:
1. Take another LIC policy like jeevan anand so that i can get lumsum amount after 20 years so that I can use for requirements on that day, and it als covers for insurance.
2. Plan for National Pension scheme which is actually for retirement benefits. or Pls suggest if you have any better alternatives. I am not interested to invest in private sector…
Which plan would u suggest which helps me in long run… Thanks in advance…
Shiv, LIC should be looked only from insurance perspective and not from investment side. NPS is no doubt a good scheme for people looking for safe investment option after retirement. You can also try PPF where you can get tax returns of 8.5% with a lock in period of 15 years. This could be a good retirement option. There are several alternatives. Check this article and come back with your furthe queries. https://myinvestmentideas.com/2013/01/5-ways-of-financial-planning-for-retirement/
My date of birth is 10-06-1972 and working with central government under the payband ( 15600 basic and 6000 pay band) how much amount shall be invested by me in NPS so that I must recewive Rs. 30000/- p.m. at today value when my age is 60 years.