The Pension Fund Regulatory and Development Authority (PFRDA) announced that its assets under management (AUM) crossed Rs 6 trillion under the National Pension System (NPS) and Atal Pension Yojana (APY) on Wednesday, May 26, 2021. The assets under management increased by Rs 1 trillion within just 7 months.
“We feel immensely gratified at reaching this milestone of Rs 6 trillion AUM, and in less than seven months as we were at Rs 5 trillion in October 2020. The achievement shows the faith subscribers have in NPS and PFRDA. A growing realisation during this pandemic is the priority accorded by individuals to retirement planning, for preserving their financial wellbeing,” said Supratim Bandyopadhyay, Chairman, Pension Fund Regulatory and Development Authority.
PFRDA has witnessed remarkable growth in National Pension Scheme subscribers over the years with 74.10 lakh government employees in the scheme and 28.37 lakh individuals joining from the non-government sector. The total subscriber base of PFRDA has increased to 4.28 crore, the statement mentioned.
In October last year, the total assets under management of PFRDA touched the Rs 5 trillion mark.
What is National Pension Scheme (NPS)?
NPS is a government-sponsored pension scheme. It was launched in January 2004 for only government employees. However, in 2009, it was allowed for all sections. The NPS scheme allows subscribers to contribute regularly to a pension account during their working life. On retirement, subscribers can withdraw a part of the corpus as a lump sum amount and manage the remaining amount or corpus to buy an annuity to secure a regular income after retirement.
Types of NPS Account
There are two types of NPS accounts
NPS Tier 1 Account: This is the mandatory NPS account, and investments made into it present tax exemption benefits under Section 80(C). While the general cumulative 80C benefit is only up to Rs.1.5 lakhs, investment in this NPS account gives National Pension System subscribers an extra tax exemption benefit of Rs. 50,000. However, there are notable restrictions on withdrawals from this account.
NPS Tier 2 Account: This is an optional retirement cum investment account for NPS subscribers who have a Tier 1 NPS account. Investments made into this account do not have any tax exemption benefits. Additionally, investments into this account are allowed only if the tier 1 account is in good standing. Under the NPS Tier 2 Account, there are no withdrawal restrictions on investments made.
How to Open an NPS Account
PFRDA regulates the operations of the NPS, and they offer both an online and offline account.
– To open the NPS account online, one should visit the PFRDA Website first.
– Then click on the ‘Registration’ and select the ‘register with Aadhaar’ Option.
– Enter the Aadhaar Number and click on the “Generate OTP” option.
– The OTP will come to the registered mobile number of the subscriber.
– Enter the OTP along with personal details, bank details and nomination details.
– Once the application is successfully submitted, Permanent Retirement Allotment Number (PRAN) will be assigned.
– The subscriber photograph will be the same as in the ‘Photograph and Signature’ tab.
– Then click on the ‘e-signature’ option. Once again an OTP will be generated and will come to the subscriber’s mobile number.
– Finally, Enter the OTP to verify your signature and make payment.
To open an NPS Account Offline, one can visit the nearest Point of Presence (POPs) registered under PFRDA to get the registration form. POPs are certain banks and financial institutions appointed by PFRDA to provide services to customers under the NPS scheme.
For subscribing to NPS Scheme offline, one needs to fill out basic details in the application form and present necessary Know Your Customer (KYC) documents including PAN Card, Aadhar Card, address proof etc.
Who can invest in NPS?
There are three categories in which people can subscribe to NPS. One is the statutory contribution by the government employees, the second is the contribution by the corporate employees, and the third is voluntarily open to all citizens. NRIs also can invest in NPS. The minimum age of investment is 18 years and the maximum age one can join is 65 years.
Benefits of NPS
Returns/Interest- NPS has been in effect for over a decade now and delivered solid returns over the past years. Last five-year returns from NPS equity schemes range between 14.50%-15.80%, while its corporate debt funds and government bond funds have delivered between 10.30%-11.90% over the past five years. These returns are much higher than EPF or PPF.
Risk Assessment- One can take up to 75 per cent exposure in equities in NPS which enhances the return potential from NPS. At the same time, at least 25% of the savings remain invested in debt instruments which secures the downside protection of the retirement savings in case of any unexpected correction in the equity markets.
Tax Benefit- Another biggest benefit of NPS is its tax deduction. NPS contributions are eligible for Income Tax deduction under Section 80C. Deduction up to Rs 1.5 lakh in 80C and up to additional Rs 50,000 can be availed under Section 80 CCD (1B). So one can take a tax deduction of up to Rs 2 lakh in NPS as compared to maximum Rs 1.5 lakh deduction in the case of PPF or EPF.
Low Cost- NPS is extremely cost-effective. Pension fund manager fees in NPS is currently capped at 0.01% as compared to the maximum expense ratio of 2.25% for mutual fund schemes.