National Pension System‘s (NPS) subscribers will now have an option to change their asset allocation four times in a financial year. As of now, they can change the allocation twice in a financial year, if they have opted for active choice asset allocation. PFRDA Chairperson Supratim Bandyopadhyay said this earlier this week, adding that with this, the demand of many NPS subscribers has been accepted.
What is National Pension System?
NPS is a retirement saving option where individuals can contribute a monthly amount to withdraw regular income after retirement. It is a government-sponsored pension scheme, which was launched in January 2004 for government employees. Later, in 2009, it was opened to all sections. The NPS is a pension-cum-investment scheme launched by the Government of India to provide old-age security to citizens of India. It brings an attractive long-term saving avenue to effectively plan your retirement through safe and regulated market-based returns.
Schemes Under the NPS
In the National Pension System, there are multiple pension fund managers and investment options (auto or active). It has four asset classes — equity (E), corporate debt (C), government bonds (G) and alternative investment (scheme A). Schemes under each of the classes has two tiers. The subscriber first selects the fund manager, and then he/she has an option to select any one of the investment options.
What is the Eligibility?
To join the NPS, one has to fulfil eligibility conditions: A citizen of India, whether resident or non-resident; applicant should be between 18 to 70 years of age as on the date of submission of his/her application; and the applicant should comply with KYC norms prescribed by the scheme.
Tier 1 and Tier 2 Under NPS
There are two types of NPS accounts — Tier 1 and Tier 2. Tier 1 account is mainly meant for retirement savings where one has to make a minimum contribution of Rs 500 while opening the account. It also entails tax benefits under Section 80CCD (1B) of the Income Tax Act, 1961.
Under the NPS Tier 1, a person is allowed to withdraw 60 per cent of the accumulated corpus contributed during his/ her working years at the time of retirement, which is tax-free. The remaining 40 per cent is converted into an annuatised product.
NPS Tier 2 is an open-access account with a minimum investment of Rs 1,000, where the subscriber is free to withdraw his/ her entire corpus at any point in time. No tax benefits are available in this account.
The Risk Rating System
The Pension Fund Regulatory and Development Authority of India (PFRDA) rules have outlined six levels of risk — Low Risk, Low to Moderate Risk, Moderate Risk, Moderately High Risk, High Risk, and Very High Risk.
“Schemes of the National Pension System (NPS) are becoming an important asset for investment for long-term saving of the individuals and help in creating a desired corpus for pension, if invested in an informed manner. The investment under various asset classes of the Schemes of Pension Funds would involve different level of risks for subscribers and, therefore, it is desired that the adequate disclosure of the risks involved in various schemes of NPS are made available for awareness of the subscribers,” the PFRDA has said in the circular.