Gift Yourself A Happy Retirement: National Pension Scheme

‘Baby Boomers’ or our ‘Mommas’ and ‘Papas’ have been lucky to be the last generation of people who have received pensions from their employers, post-retirement. At least some of them did. At their time, it did not matter whether a person worked in a government school or a private company; they were eligible for a pension. However today, except for people working in Government services and organizations, the private sector does not offer pensions. Even the pension for Government employees may not be enough for the rising cost of living and deal with inflation.

National Pension Scheme is one such investment that can be made during an individual’s employed or self-employed days to sustain themselves post-retirement. This not only acts as savings but helps you to save tax as well, when you invest in it. It is indeed a gift that you give your future-self.

What is National Pension Scheme (NPS)?

The Government of India started the National Pension Scheme under the Pension Fund Regulatory and Development Authority (PFRDA). National Pension Scheme is an after retirement age security coverage to all citizens who have opted for this scheme. It is a voluntary scheme that can be subscribed for pre-retirement.

Tax Benefits of National Pension Scheme

Based on Union Budget 2019, NPS now qualifies to be an Exempt-Exempt-Exempt (EEE) category product. This means that NPS tax is exempted at all 3 stages. Here is how you benefit from it:

  • Tax deductions up to 1.5 lakh per annum under Section 80CCD of the Income Tax Act.
  • Additional tax deduction up to Rs. 50,000 under Section 80CCD(1B) in a financial year. (only Tier 1 accounts are eligible, not Tier 2)
  • At term completion or 60 years, 60% of the amount received is free from tax, while the rest 40% has to be invested in annuity.

Other Benefits and Features of National Pension Scheme

National Pension Scheme comes loaded with certain features and benefits that can prove to be useful for both your long-term and short–term goals:

  1. Returns: You can expect a return of up to 12% NPS. The return percentage is dependent on the type of National Pension Scheme that an individual chooses which is then calculated by the government-appointed Pension Accounting Office.
  2. Regular Income Post-Retirement: The scheme investor is eligible to receive monthly pension amounts to be able to sustain a comfortable living for their future.
  3. Flexible: An NPS account can be operated from every nook and corner of India irrespective of individual employment and location. You can also switch between funds in NPS.
  4. Portable: NPS scheme holders can move from one sector to another like Private to Government or vice versa or Private to Corporate and vice versa. The NPS account will always be the same no matter wherever you go. Even if you leave your job, you can continue using the same account.           

Eligibility Criteria for National Pension Scheme

The following criteria should be met to be eligible for investing in the National Pension Scheme:

  • Applicant should be a citizen of India.
  • He/she/they should be over 18 years of age and less than 60 years of age.

Types of National Pension Scheme Accounts

There are two types of accounts for NPS and individual may subscribe for:

  1. Tier 1
    It is a mandatory account for all those who opt for NPS.
  • The Government employees have to contribute 10% of their salary (salary = basic + DA), and the government will make equal contributions as well.
  • For others opting this scheme, the initial contribution is Rs. 500/- at the time of account opening and minimum annual contribution is Rs. 1000.
  1. Tier 2
    Not a compulsory account like Tier 1. You can withdraw funds at any time, and hence, it provides high liquidity. There are no contributions from the government or the employers and include no tax exemptions either. There are three critical points to make a note of:
  • The minimum amount required to open this account is Rs. 1000/-
  • Minimum monthly contributions amount to Rs. 200/-
  • Necessary to hold a minimum balance of Rs. 200/- every financial year.

What Investment Options Do I Get?

  1. Active-choice: With this investment option, an investor gets to mix equity, corporate debt, and government securities as per his/ her choice. However, the allocation of equity can be a maximum of 50%.
  2. Auto- choice: Allocation is done based on the investor’s age.
Equity Till the age of 35, the equity portion is 50%, post which it reduces 2% yearly till it becomes 10% by the age of 55.
Corporate Debt Till the age of 35, the corporate debt is 30 %, post which it reduces 1% every year until it becomes 10% by the age of 55.
Other Options 1. Aggressive life-cycle fund – begin with an equity allocation of 75%
2. Conservative life-cycle fund – start with an equity allocation of 25%
Reduce as per the investor’s age advances.

Where to Create an NPS Account?

Opening an NPS account is not that difficult now, it’s just a click away. You can easily invest in NPS online through the Fisdom App. We are a new-age app that makes it easy to invest in mutual funds, in a matter of minutes.

Withdrawal and Exit From NPS Account

If you retire at 60:

  • 40% of withdrawals are free from tax.
  • From the balance 60%, 40% minimum has to be used to purchase an annuity. The remaining 20% can be used to either buy an annuity or withdrawn by paying tax according to the tax slab.

If you retire before 60 years:

  • You would use 80% of your corpus to buy an annuity.
  • And withdraw the remaining 20% by paying the amount taxable according to the tax slab.
    Remember, the taxation of the amount via annuity is according to your tax slab. In the event of the account holder’s death, the nominee receives the entire amount.
Documentation for NPS Withdrawal

There are certain documents that require to be submitted for withdrawing money from your NPS account:

  1. A filled and signed withdrawal form
  2. Original PRAN card
  3. Copy of your Proof of Identity which must be self-attested
  4. A cancelled cheque of your active bank account

Now that you have a good idea about a National Pension Scheme and how it works it’s never too late to open an NPS account on Fisdom App.

Happy Investing!


Money in need, is money indeed!

Demonetisation made you sweat a pond;
The big corporate defaulted on its bond.

Limitations were imposed on your account;
Yet you ignore liquidity & focus on the amount?

Investing is pretty much like the perfect dinner – a well-diversified spread of dishes with nutrients in line with your health requirements. This is pretty much what you must seek in investments in the form of a diversified portfolio in line with your investment objectives & risk profile.

But imagine, you are hungry, and this appetizing meal is well-laid out in front of you and you take the first bite only to realize that the blessed chef simply forgot to add salt.

Quite often than not, you decide the asset class that fetches you the best returns but miss out on checking a simple attribute – liquidity.

Like salt, one realizes the value of liquidity only when it goes missing. What’s worse, by the time you realize it, you’ve typically reached the point of no return.

Recent times are a wake-up call for investors chasing returns in isolation, without considering other key attributes including liquidity risk & the importance of diversification.

We all know about PMC bank that was recently mandated to freeze depositor accounts or allow withdrawals subject to a significantly low threshold – irrespective of the amount held in the account. In similar news, DHFL could not repay investors who had parked their money in DHFL-issued fixed deposits. Such news triggered a slew of reports on people who lost health, and life in extreme cases, simply because most had their life savings parked entirely in the affected accounts and couldn’t come to terms with the fact that there is a possibility that they can never see their money again.

Developing situations made my cousin Anjali take a step back and re-think of the multiple financial decisions she had made and how could she possibly strategize well-enough to avoid, or at least mitigate, the risk of not being able to access her money while ensuring it appreciates optimally.

Here’s the list of actionable she shared with me saying that this would help her minimize risks and maximize returns on every penny deployed:

  1. Park money required to meet immediate liquidity in the savings account of a large bank
  2. Invest money needed for short term needs in very high-quality bonds/debentures – in many of them so that if one of them were to come under stress like DHFL, rest of the bonds continue to cover for the losses
  3. Deploy money needed to meet long-term objectives in multiple well-researched, high growth potential equity shares.
  4. Keep monitoring the holdings daily and keep managing the portfolio hoping that my knowledge suffices to take the right investment decisions.

Well, life was simple & she was confident till point 3, but point 4 made her open yet another pandora’s box wondering aloud if she really had the knowledge and time to actively manage the portfolio? How would she buy bonds & debentures reserved for institutional investors? Could she manage multiple trading accounts? Does she have the wherewithal to gain access to insights reserved typically for large institutional investors?

“I don’t think managing money is going to be as simple as the one, two and three. I know what’s required, but there’s no way I could do that myself. If only there was a way…” she rambled to herself as an idea struck her like lightning.
“Mutual Funds?”, she asked with a hopeful gaze.
“Precisely” was the only word I uttered as she picked the drift.

Mutual funds are typically pooled investment vehicles managed by highly qualified funds managers and regulated by SEBI – known for its typically low tolerance for compromised governance. Mutual Funds have a category-suite vast and expansive enough to suit almost all investor needs. While the fund manager’s role is to maximize wealth optimally, the role of a financial advisor is to help the investor with an efficient combination of well-managed mutual funds.

Informed decision making, predictable liquidity, and solid diversification are at the heart of mutual funds as a product.

Reply to this e-mail to know more about how you can utilize various mutual funds to achieve a variety of financial goals you have.

Indians are getting richer, Indian equities are next-in-line

Nifty and Sensex ended the week up by 2.65% and 2.84% respectively.

The recent credit Suisse publication – Global Wealth Report 2019 reflects total wealth grew at an annual rate exceeding 10%. Wealth increased significantly in every region of the world. Emerging market economies, especially China and India, did not simply benefit from this growth but featured as a key driver to the overall uptick

One key takeaway would be that while the wealth in most nations has been expanding, there seems to be a systemic fracture posing to be a hurdle in overall economic progress and hence the synchronised global slowdown today.

In other news, here is the week at glance:

  • The Federal Reserve cut its benchmark rate by 0.25%, a move that was widely expected & priced-in by futures markets.
    The statement may reflect a central bank that will be less willing to cut interest rates in the coming quarters after it removed the phrase that the Fed “will act as appropriate to sustain the economic expansion” and replaced it with less forceful language suggesting a wait-and-watch approach.
  • India to spend $100 bn on energy infra, says PM Modi inviting Saudi investment
    India is expected to invest a massive $100 billion in oil and gas infrastructure to meet energy needs of an economy that is being targeted to nearly double in five years, Prime Minister Narendra Modi said on October 29 as he sought investment from oil kingpin Saudi Arabia and other nations to boost supplies. Speaking at Saudi Arabia’s annual investment forum, also known as ‘Davos in the desert’, Modi promised stable, predictable and transparent policy regime to catalyse foreign investments.

Stock of The Week

Fund alerts:

Aditya Birla Sun Life Mutual Fund has decided to change the benchmark of the Aditya Birla Sun Life Equity Fund from S&P BSE 200 TRI to S&P BSE All Cap Index TRI.

Bottom line:

Earnings season, so far, have been slightly better than analyst expectations with major banks showing improvement in asset quality and fall in slippages, auto and technology companies’ improved earnings were partially backed by corporate tax reduction indicating a systemic recovery in second half FY20.
Though major indices may seem to lend a perception of Indian equities hitting the peak; however, the reality is far from it. We recognise immense valuation-based opportunities in Indian equities – especially in stocks beyond NIFTY15.
Investors deploying capital into large-cap-oriented & multi-cap funds through a Systematic Investment/Transfer Plan can be expected to benefit the most from the structural recovery underway.