Did you know?

This product does not lapse,unlike an insurance product. If you don’t pay your premiums your insurance policy lapses. Here if you are not able to pay the premium in a particular year your account becomes dormant. It can be revived again by paying a small penalty of Rs 100.

If you switch from one fund to another or from one fund manager to another,there are no switching charges. You only pay a transaction fee of Rs 10 per switch.

Which fund options does NPS offer?

Investors may choose the active choice option or the default option. Under the active choice option,you have three types of funds: E,which will invest up to 50 per cent in equities and the balance in corporate bonds and government securities; C,which will invest in corporate bonds and liquid funds; and G,which will invest its whole corpus in government securities.

Under the default option,which has been fashioned by the regulator,when you are younger you will have greater equity exposure. As you grow older,your equity exposure will drop and more of your funds will be shifted to corporate and government bonds. The asset allocation will change according to your age profile. The maximum equity exposure will be up to 50 per cent here. After the PFRDA Bill is passed,the regulator may revisit this maximum equity exposure norm (of up to 50 per cent).

What choices can NPS investors exercise?

Under NPS you can manage your own money. The individual decides which type of fund his money will be invested in and who the fund manager will be. You also have the flexibility to switch from one fund type to another and from one fund manager to another without paying any switching charges or entry/exit load. And you get a larger equity exposure here. In EPF you do not have any choice about the type of fund or the fund manager. You also have the convenience of online transactions. You are hence aware of how much money has accumulated in your account,and what the daily NAV of the fund is. You will be given a telephone PIN (TPIN) and an Internet PIN (IPIN) and will be able to operate your account yourself at the NSDL website.

How many switches are allowed?

At present only one switch is allowed in a year. But the regulator plans to allow greater frequency as the NPS matures.

How much has to be annuitised?

If you do not withdraw money from NPS prior to retirement,then at maturity you have to annuitise 40 per cent of the corpus and the rest is given to you as a lump sum. But if you withdraw prior to retirement,you have to annuitise 80 per cent of the corpus. This has been done to disincentivise withdrawals and to protect the corpus for retirement.

What is the tax provision at redemption?

The annuitised part of your accumulations under NPS will be tax free. However,if you withdraw your savings for consumption then you will be taxed at the marginal rate.