New Pension Scheme for Private Sector [Indian Finance]

If you were planning for sometime to invest in Pension funds, now is the good time to go.  New Pension Scheme (NPS), a version optimized for Private Sector employees and backed by the Government, is opening up from 1 May 2009.

A Bird’s eye view of the Scheme

NPS enables you to invest for your retirement.  As a owner of the money, you can decide the portfolio based on your risk appetite.  There are two flavors of the scheme – Active Choice and Auto Choice.

In the Active choice flavor, you can choose to invest your savings in either of the following 3 categories – High return high risk, Medium return medium risk, low return low risk.  If you are not inclined to make these decisions, then the Auto choice jumps in to make a suitable decision for you.

For more details on the scheme, you can refer to the presentation (PDF File) provided by PFRDA

Why should you consider investing here?

• NPS is backed by PFRDA, which is a Government organization
• PFRDA has shortlisted six best fund managers to manage your money
• As a private sector employee, you are left with nothing other than the savings, investment returns and PF for your retirement.  This is a good add-on!
• You get tax exemption of up to 1 Lakh Rupees under Section 80C, for the amount invested

How to enroll for NPS?

• Find out your nearest Point of Presence – Service provider (or simply the banks where you can open the NPS Account)
• Here is the list of POP-SPs provided by PFRDA (PDF File)
• Move off your butt, get to the provider and submit the registration form
• Also, you are required to make the first contribution at this time – Minimum of Rs. 500
• You will receive a “Welcome Kit” with a Permanent Retirement Account Number (PRAN), which will be your identification for the pension account
• You can then contribute further to your account, from anywhere in India through the appropriate providers

Some Key Points to remember

• You must be between the age of 18 and 55 to register with NPS
• There are some minimum criteria that must be met – Minimum contribution of Rs. 500 per transaction, Minimum contribution of Rs. 6000 per year, Minimum of 4 contributions per year
• There are no maximums!
• You can switch between different Pension funds, starting April 2010
• You can only withdraw 20% of the amount invested before the age of 60.  Rest 80% must be used to purchase annuity from a regulated insurance company
• Between the age of 60 to 70, you can withdraw up to 60% from the kitty.  Remaining 40% must be used to purchase annuity
• You must exit the scheme on or before the age of 70
• As with any other investment, there is a degree of risk associated with your investment.  There are NO GUARANTEED RETURNS

I would recommend you to go through the Detailed Investment Guidelines (PDF File), before making decisions.  Happy investing!!

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