Tax Benefits
Tax benefits are important. You want
to ensure that you get the benefits at every stage such as on investment, on
accruals and on redemption. Each product has its own tax advantage – however
not all may offer the benefits at every stage of the investment. Hence choosing
the right product is important.
The National Pension System (NPS) is
a product that stands out in terms of the above factors. To begin with, NPS is
a low-cost, market-linked, retirement corpus accumulation tool.
NPS was launched in 2004 for
government employees. In the year 2011, it was made available for employees
from the private sector as well. There are two types of accounts under NPS –
Tier 1 and Tier 2. Tier 1 account is the
one where you are eligible for tax advantages. Tier 2 account is a simple
investment management account. Tier 2 account is not eligible for tax benefits.
There are four asset classes
available, in which you can allocate your investment - Equity referred to as
the ‘E’ category, Corporate Bonds which is referred to as the ‘C’ category and
Government Securities which is referred
to as the ‘G’ category. The fourth asset category is Alternate Investments
referred as ‘A’. This plan invests in Alternative Investment Funds (AIF
Category I and II), Real Estate Investment Trusts (REITs), Infrastructure
Investment Trusts (InvITs), Basel III Tier 1 bonds and securitised papers. This
asset class was introduced in 2016 and can be considered if you have an
appetite for risk. However, as NPS focuses on long-term corpus building, to
ensure your risks are limited, there is a cap on investments in this class. You
can invest up to 5 percent in this scheme under the active choice option.
Now that you have a brief
introduction to NPS, let us take a look at special features which make this
product an attractive option for building your retirement corpus:
In NPS there is an option to choose
between Active and Auto Choice for portfolio management. Under Active Choice
you can self-manage your NPS portfolio asset allocation. Auto Choice works well
for those who do not have the time or expertise to self-manage. Under this
option there is automatic rebalancing of the portfolio where the asset
allocation ensures that the risk is reduced with increasing age
NPS has low charges (less than 0.10%
- almost 1/15th of the fund management cost of other comparable actively
managed funds)
NPS being a long-term investment
product enables you to benefit from the power of compounding
NPS offers you Tax advantage
NPS as a product has a strong risk
management framework defined by PFRDA through clearly defined investable
universe for Pension Fund Managers
There is close regulatory
monitoring/supervision and course correction of Pension Fund Managers’
performance.
Who can join the NPS?
Any Indian Citizen (resident or
non-resident) and Overseas Citizen of India (OCI), aged between 18-70 years can
join. The individual needs to be compliant to Know Your Customer (KYC) norms.
Can an NRI join NPS?
Yes, an NRI between the age of 18 –
60 years, as on the date of submission of his/her application and complying
with the extant KYC norms, can open an NPS account.
How can you open an NPS account?
You can open an NPS account in
the following manner:
Through Points of Presence (PoPs)
registered with PFRDA through their website (Online) or by filing up an
application form (Physical mode) - Point of Presence (PoP) is the distribution
channel and the first point of contact for applicants and subscribers. PoPs are
mandated to provide services related to Subscriber Registration (Collection of
forms and KYC verification), receiving /uploading contributions, processing
subscriber requests for updation of account details, exercising choices,
withdrawals, grievances resolution, etc.
Through the online platform
(eNPS) of NPS Trust
An NPS subscriber's data is stored
with the Central Record-keeping Agency (CRA). It is responsible for the
centralized record keeping, administration, as well as customer service
functions for all NPS subscribers. Presently, there are 3 CRAs in India -
Protean, KFintech and CAMS. As a subscriber, you can choose any one.
Conclusion
A financial plan is never complete
without retirement planning. When planning for your retirement, evaluate NPS
and you will be surprised to see the benefits it offers at an extremely low
cost.
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