National Pension System (NPS) - Good way to build net-worth for retirement

Central Government started this scheme in the middle of 2009 under the umbrella of Pension Fund Regulatory and Development Authority (www.pfrda.org.in). PFRDA is the regulator of this scheme and issue guidelines for efficient governance and management of funds.

Salient features of NPS are :-

• Lucrative investment options
• Flexibility to withdraw money under Tier II scheme
• Funds are managed by professional fund managers
• Various investment options like mutual funds and ULIPs. Options ranges from Equity to debt to Fixed income to government securities.
• Low threshold limit of Rs 500 per installment
• Option to invest on monthly basis
• No brokerage charged by fund managers like mutual funds or shares
• NPS account can be opened with almost every bank and post offices.
• Bank issues an unique account number (PPAN) which remains same throughout the life of investor
• Transparent record keeping with professional and independent agency.
• Available for everyone between the age of 18 years to 60 years.
• Easily transferable account from one branch/location to other branch/location.

The most attractive characterstick of NPS is its multiple investment options. It allows investor to divert funds towards Equity, Debts, Government securities or investment which yields fixed income. This flexibility covers risk appetite of masses and becomes the favorite option for investor who really think long term future security.

This scheme has been designed so carefully that a lay man can understand the structure and feel confident before opting for it. The effort has been made by government to keep charges on lowest possible side and in simple manner.

It has some major shift for Central/State Government employees. Employees who has joined services on or after 1st Jan 2004, will no longer have option of GPF as a result they will have to opt for NPS only. Such employees will have an option to opt of Tier I (Mandatory non withdrawal account) or Tier II (Voluntray withdrawal account).

The story does not end here. It seems that government has taken a oath to make it successful, hence It has been allowed as Tax rebate under Section 80C. Also it has been included under EEE products which means the income earned out of investment made in NPS is exempt from tax.

Apart from regular NPS, the recent addition to this scheme is "NPS lite" which is meant for low income investors and works on group contribution basis. Barring some small technical processes and formalities, scheme in principle remains same with its motto to make people secure their retired age.