Are you looking for a new pension system ? Your wait is over ! The Pension Fund Regulatory and Development Authority (PFRDA) recently announced a New Pension Scheme (NPS) that allows anybody, irrespective of their employer, to start an NPS account and save up for pension.If this scheme is launched as schdule on  May 1 then any Indian citizen will be able to join NPS with a minimum investment of Rs 6,000 annually.

Even Union government employees who joined service after January 2004 can be part of the scheme.

New Pension System (NPS)

Investment categories: PFRDA is offering only three fund options under the scheme:

Equity (E)
Growth(G)
Conservative(C).

The equity fund is an index fund that will invest in the stocks of the Nifty-50 index. Index funds are passively managed funds that reflect the portfolio and movement of their benchmark index.

Growth fund will predominantly invest in government of India bonds.

conservative funds will invest in debt securities and corporate bonds.

You get a fourth option as well. In default, according to PFRDA’s suggestion, 60% can be invested in equity, 30% in conservative and the rest in growth till the age of 35. When you reach 60, the portfolio won’t have any equity exposure, 80% will be allocated to growth and 20% to conservative fund options.
Rate of return: None of the options guarantee a return. Gaurav Mashruwala, a Mumbai-based financial planner, says: “One can expect 15-17% annualized return from equity over a period of 7-10 years, 6-8% from growth and higher return than G-secs (government securities) in (the) conservative option.”

Charges: There are four kinds of charges under NPS—fund management charges (0.009%), central record-keeping charges (Rs380 as annual maintenance fee per subscriber and Rs6 for every transaction), point of presence charge (Rs40 as registration fees) and custodian charges (0.007%). PFRDA officials say the total cost would not exceed 15-20 basis points. In other words, only 15-20 paise per Rs100 will go as charges.

Tax implication: NPS is currently EET (exempt, exempt, taxed). This means the money is tax-free during the savings and accumulation stage, but taxable when withdrawn.

How to join: PFRDA has appointed 23 entities as point of presence for registration, including State Bank of India (SBI) and Life Insurance Corporation of India (LIC).  (source – livemint.com)