New Pension Scheme
Since May 2009, Indian citizens got access to another investment avenue through New Pension Scheme (NPS). It requires you to invest during your productive years and withdraw he money when you retire. Earlier, only central government employees enjoyed its benefits but it now allows of the Indian citizens to benefit from this.
Types of accounts:
- Tier I account of NPS was launched in May 2009, which is a non- withdrawable account. The tier I account does not allow you to withdraw any money before 60 years of age, which is the retirement age. Medical emergency and certain situations can be exceptions which can allow you to withdraw money. Tier I is mandatory for government servants
- The tier II account permits premature withdrawal, has been made public recently. It is almost like a savings account but to have a tier II account one needs to have an active tier I account first. Here, there are no limits to withdrawals.
Guidelines:
Pension Fund Regulatory and Development Authority (PFRDA) is the regulatory body of the NPS which has set cetrain guidelines:
- Minimum amount per contribution is Rs. 500 for tier I and Rs. 250 for tier II.
- Minimum number of contributions in a year: 4
- Minimum contribution in a year in a subscriber account is Rs. 6000 for Tier I and Rs. 4000 for Tier II account.
- Defaulting on the the minimum annual contribution, a penalty of Rs. 100 per year will be charged and accoount will be de acitavted.
Investment options:
Currently, the funds are managed by six AMCs; State Bank of India, Kotak Mahindra, IDFC, UTI, ICICI Prudential and Reliance. There are three separate schemes, managed by the pension fund managers, all three investing in different asset classes.
- Fund E would mainly invest in equity markets, upto 50 per cent
- Fund G invests in government securities like GOI bonds or state government bonds.
- Fund C would invest in fixed income securities other than Govt. securities
The subscriber has the choice to decide where to invest among the three asset classes. There is also an ‘Auto Choice’ option which will invest in a pre determined fashion.
Till 35 years of age, the Auto choice invests 50% of wealth in E fund, 30 % in C fund and 20 % in G fund.
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