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!!