1. NPS Tier-I is a solution-oriented fund comprising various products.
2. In Auto-choice, E(quity) portion is 50% tapering to 10%, C(orporate) bonds portion is 30% tapering to 10%, and G(overnment) securities portion is 20% increasing to 80% with age slabs.
3. Performance comparison should be done for each class against respective benchmarks only.
4. Regarding E Class, its 5/10-year returns of 15/10% CAGR is similar to its benchmark index Nifty 50.
5. Being a strictly mandated product, we should not expect alpha in it, for which Tier-II has been provided.
6. You could utilize NPS under Sec 80CCD(1B) as additional tax-saver up to 50,000, which invests in both types of assets simultaneously, in its automatic option, with pension after retirement
7. NPS is the only product (besides Atal Pension Yojna) under this tax-exempt section.
8. It has a retirement-oriented structure, with limited withdrawal and mandatory pension on maturity.
9. Its pros are:-
a) Additional tax benefit of 50000, suitable for higher tax slabs.
b) Conducive for moderate risk appetite investors, with its lower expenses and Auto-choice, where E(quity) portion is 50% tapering to 10%, C(orporate) bonds portion is 30% tapering to 10%, and G(overnment) securities portion is 20% increasing to 80%, changing as per age slabs, and the returns in line with respective benchmarks.
c) Provision for higher Equity exposure with optional Tier-II.
d) Suitable for retirees seeking monthly pension only, instead of lumpsum, with regulations safeguarding their investment.
e) eNPS allows online registration, contribution and Tier-II option too.
10. Its cons are:-
a) Closed-ended scheme, higher lock-in, and mandatory annuity.
b) Only one account is operable.
c) Equity investment up to 50%, lesser actively managed, with strict mandates, thus limiting alpha.
d) Restricted withdrawals that are currently taxable.
e) No guaranteed returns, although being a Government scheme.
11. The active choice option of NPS allows allocation of funds across 3 options:
a) Fund E (Equity) – in which 50% max of portfolio is allowed,
b) Fund C (Corporate bonds) – that invests in corporate bonds,
c) Fund G (Government securities) – that invests in government bonds.
12. Lifecycle fund (Automatic) option allocates funds to these 3 asset classes in a predefined proportion based on investor’s age, where till 35 years, 50% of corpus is in E class fund and remaining is split between C class and G class funds.
13. Thereafter, every year 2% of the assets in E class fund and 1% of the assets in C class funds are shifted to G class fund, with maximum 10% remaining in E class fund by age 55.
14. Investors have option to change scheme choices for allocation of funds among various asset classes.
15. In May every year, funds can be switched among the 3 options, and also between ‘auto choice’ and ‘active choice’ modes.
16. A switch implies redemption from one fund and investment in another, leading to gains or losses, with tax implications.
17. NPS also offers switching of fund managers too, if not satisfied with the performance of a certain fund, without any tax implication as the money remains invested.
18. NPS, thus offers flexibility to decide percentage of corpus that goes into equity, corporate bonds and government securities, with only limitation being 50% cap on exposure to equity.
19. Nifty50 is the benchmark for E class of fund.
2. In Auto-choice, E(quity) portion is 50% tapering to 10%, C(orporate) bonds portion is 30% tapering to 10%, and G(overnment) securities portion is 20% increasing to 80% with age slabs.
3. Performance comparison should be done for each class against respective benchmarks only.
4. Regarding E Class, its 5/10-year returns of 15/10% CAGR is similar to its benchmark index Nifty 50.
5. Being a strictly mandated product, we should not expect alpha in it, for which Tier-II has been provided.
6. You could utilize NPS under Sec 80CCD(1B) as additional tax-saver up to 50,000, which invests in both types of assets simultaneously, in its automatic option, with pension after retirement
7. NPS is the only product (besides Atal Pension Yojna) under this tax-exempt section.
8. It has a retirement-oriented structure, with limited withdrawal and mandatory pension on maturity.
9. Its pros are:-
a) Additional tax benefit of 50000, suitable for higher tax slabs.
b) Conducive for moderate risk appetite investors, with its lower expenses and Auto-choice, where E(quity) portion is 50% tapering to 10%, C(orporate) bonds portion is 30% tapering to 10%, and G(overnment) securities portion is 20% increasing to 80%, changing as per age slabs, and the returns in line with respective benchmarks.
c) Provision for higher Equity exposure with optional Tier-II.
d) Suitable for retirees seeking monthly pension only, instead of lumpsum, with regulations safeguarding their investment.
e) eNPS allows online registration, contribution and Tier-II option too.
10. Its cons are:-
a) Closed-ended scheme, higher lock-in, and mandatory annuity.
b) Only one account is operable.
c) Equity investment up to 50%, lesser actively managed, with strict mandates, thus limiting alpha.
d) Restricted withdrawals that are currently taxable.
e) No guaranteed returns, although being a Government scheme.
11. The active choice option of NPS allows allocation of funds across 3 options:
a) Fund E (Equity) – in which 50% max of portfolio is allowed,
b) Fund C (Corporate bonds) – that invests in corporate bonds,
c) Fund G (Government securities) – that invests in government bonds.
12. Lifecycle fund (Automatic) option allocates funds to these 3 asset classes in a predefined proportion based on investor’s age, where till 35 years, 50% of corpus is in E class fund and remaining is split between C class and G class funds.
13. Thereafter, every year 2% of the assets in E class fund and 1% of the assets in C class funds are shifted to G class fund, with maximum 10% remaining in E class fund by age 55.
14. Investors have option to change scheme choices for allocation of funds among various asset classes.
15. In May every year, funds can be switched among the 3 options, and also between ‘auto choice’ and ‘active choice’ modes.
16. A switch implies redemption from one fund and investment in another, leading to gains or losses, with tax implications.
17. NPS also offers switching of fund managers too, if not satisfied with the performance of a certain fund, without any tax implication as the money remains invested.
18. NPS, thus offers flexibility to decide percentage of corpus that goes into equity, corporate bonds and government securities, with only limitation being 50% cap on exposure to equity.
19. Nifty50 is the benchmark for E class of fund.
20. From Nov'16, NPS subscriber can choose between aggressive and conservative funds, apart from the default moderate funds.
21. In an aggressive fund option, equity can be 75% up to 35 years of age, while it is capped at 50% and 25% in moderate and conservative options.
22. Even an alternative investment scheme with 5% max. exposure has been included.
23. From 2017-18, allocation to asset classes can be changed twice in a financial year, although pension fund manager can be changed only once annually.
24. NPS has restricted withdrawals, for maximizing annuity, being a pension-oriented retirement product, and not a pure investment product, although a premature exit is possible after 10 years, with 20% withdrawal and 80% in a compulsory annuity for providing a monthly pension.
25. Tier-II is a voluntary add-on option, with unrestricted withdrawal facility, more like a mutual fund, and its contributions can be moved to Tier-I, but not vice versa.
21. In an aggressive fund option, equity can be 75% up to 35 years of age, while it is capped at 50% and 25% in moderate and conservative options.
22. Even an alternative investment scheme with 5% max. exposure has been included.
23. From 2017-18, allocation to asset classes can be changed twice in a financial year, although pension fund manager can be changed only once annually.
24. NPS has restricted withdrawals, for maximizing annuity, being a pension-oriented retirement product, and not a pure investment product, although a premature exit is possible after 10 years, with 20% withdrawal and 80% in a compulsory annuity for providing a monthly pension.
25. Tier-II is a voluntary add-on option, with unrestricted withdrawal facility, more like a mutual fund, and its contributions can be moved to Tier-I, but not vice versa.