What is NPS?

It stands for National Pension System. NPS is regulated by PFRDA, with transparent investment norms and regular monitoring and performance review of fund managers by NPS Trust. Subscribers can choose their own investment options and pension fund and see their money grow.

Investment Choices Available in NPS:

NPS offers you two approaches to invest in your account:

1. Active choice

2. Auto choice

In Active choice, Subscriber selects the allocation percentage in assets classes, however, in Auto choice, funds are automatically allocated amongst asset classes in a pre-defined matrix, based on the age of the subscriber. After selection of pension fund manager, Subscriber also has to exercise the choice of investment.

Active/Auto Choice in NPS:

Active choice:

Unlike traditional investment products, NPS offers you with the flexibility to design your own portfolio. Depending on your risk appetite, you can design your portfolio by allocating Funds amongst available four asset classes. This is called Active Choice. Following are the four asset classes are available under Active choice:

1. Equity or E

2. Corporate Debt or C

3. Government Securities or G

4. Alternative Investment Funds or AIF

Auto Choice:

At times designing your portfolio can be a little delicate and time consuming. NPS gives you the flexibility to opt for a dynamic and automatic allocation of your portfolio in case you do not want to exercise an Active choice. This option is called the Auto choice.

In Auto choice, your money will be invested in asset classes – E, C and G – in defined proportions based on your age. As individual’s age increases, exposure to Equity and Corporate Debt is gradually reduced and that in Government Securities is increased. Depending upon the risk appetite of subscriber, there are three different options available within Auto Choice-Aggressive, Moderate and Conservative.

1. Aggressive – Maximum Equity exposure is 75% up to the age of 35

2. Moderate – Maximum Equity exposure is 50% up to the age of 35

3. Conservative – Maximum Equity exposure is 25% up to the age of 35

Types of NPS account:

NPS provides you two types of accounts: Tier I and Tier II. Tier I is mandatory retirement account, whereas Tier II is a voluntary saving Account associated with your PRAN. Tier II offers greater flexibility in terms of withdrawal, unlike Tier I account, you can withdraw from your Tier II account at any point of time.

Pension Funds Available in Market

1. HDFC Pension Management Company Limited

2. ICICI Prudential Pension Funds Management Co Ltd.

3. Aditya Birla Sun Life Pension Management Limited.

4. SBI Pension Funds Pvt. Ltd.

5. LIC Pension Fund Ltd.

6. Kotak Mahindra Pension Fund Ltd.

7. UTI Retirement Solution Ltd.

Tax Saving:

Subscriber can claim deduction upto INR 2,00,000 from the total income.

Author Bio

Qualification: CA in Practice
Company: JAC Chartered Accountants
Location: DElhi, Delhi, India
Member Since: 02 May 2021 | Total Posts: 2

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