NPS – National Pension Scheme
What do you understand by National Pension Scheme?
National pension scheme was launched by the government on the 1st of January 2004. It was aimed for individuals newly employed with the central government. However, it did not include the armed forces. However, from the year 2009, it was open to all Indian Citizens from the age of 18 to 60.
The National pension scheme is a contribution scheme. The Indian government offers several investment options. This scheme helps individuals to make decisions with regards to where should they invest the pension wealth.
Subscribers get PRAN (Unique Permanent Retirement Account Numbers) at the time of joining. They also get two accounts-
Tier I account – this account is for savings. You cannot withdraw money. The money is saved to be used after retirement.
Tier II Account- this functions like a normal bank account. You can withdraw as much money you need, as often as required.
Objectives of NPS (National Pension Plan)
It provides regular income in old age after retirement.
You get reasonable market-based returns in the long run.
It provides old age security to all citizens.
Structure of National pension scheme:
National pension scheme structure is supported by NPS trust. It has several functions:
the primary function is to safeguard the subscribers’ interest.
and keeps an eye on Central Recordkeeping Agencies (CRAs) which maintains the data and records.
It regulates Point of Presence (POP) for collection and distribution.
controls pension fund managers (PFM) thus managing the investment of subscribers.
the acts like a custodian taking care of the assets purchased.
It is like a trustee bank which manages the banking operations
Who can invest in NPS
Any citizen of India can invest in NPS. He may or may not be a resident of India. it should fulfill the following conditions:
He should be between the age of 18 and 60.
and he should be able to verify the KYC details.
People of unsound mind cannot invest in NPS.
Facts of NPS
The number of subscribers making use of NPS is 1.41 crore. NPS AUM(assets under management) were estimated to 1,61,016 crore. 88% of total NPS AUM is the credit of government (both state and center) employees. They account for 35% of a total number of subscribers. The total AUM of the NPS Tier II segment is Rs 197 crore, while The NPS Tier II has 34,620 subscribers with an average balance of Rs 54,000.
Opening National pension scheme account
For the benefit of the people, there are two ways of opening the account- online process and offline process.
For the benefit of the people, e-NPS was started in 2015. There are two options available to complete the KYC verification
The first one is Aadhaar based. You will be sent an OTP to the mobile number registered with your Aadhaar. The KYC information will be obtained from the Aadhaar database. You will also have to upload your scanned signature. Investment can be made through Net banking. There will be no need to sign and send the hard copy of the form. Moreover, there is no need to print the NPS form to be submitted to the central record keeping agency.
The other way is to give your PAN (permanent account number) and bank details to complete the KYC authentication step.
You have to visit any POPs (Points of Presence) which have been appointed by PFRDA (Pension Fund Regulatory and Development Authority)
Charge structure of NPS
It’s one of the cheapest pension plans in the world. Critics believe that given to such low charge structure, the expansion will be limited.
The charge structure of NPS:
POP charges- RS125 is the one-time enrollment fee. Then 0.25% (Min Rs 20 and max Rs 25000) is charged on every financial structure and collected directly.
CRA charges – there are two CRAs charges- NCRA and KCRA. They have different tariffs. While NCRA charges of Rs 40, Rs 95 and Rs 3.75 for account opening, annual maintenance and transaction charges, KCRA charges Rs 39.36, Rs.57.63 and Rs 3.36 respectively. To collect these charges, units in subscribers fund are canceled.
Fund management charge – before NAV (Net Asset Value) calculation, the fund management charges are adjusted.