Should You Look At NPS For Retirement Portfolio?

NPS stands out amongst several other investment alternatives because of its low-cost, easy accessibility and an option to build a corpus through marketlinked asset classes.

- Sanjiv Puri

For the starters, NPS is a retirement focused scheme regulated by a statutory body, Pension Fund Regulatory and Development Authority (FDA). NPS is a defined contribution schemes i.e. what an investor accumulates and get as pension after retirement is dependent on how much is put into the scheme. The return therefore, is not guaranteed but depends on performance of underlying assets.

Structure

Anyone between the ages 18-60 can join NPS, with a minimum investment of Rs 6,000 a year after fulfilling the KYC requirements. One gets a Permanent Retirement Account Number (PRAN), which captures all the data including personal details and transactions. At the age of 60, the contributions stop and one can withdraw up to 60 percent of the corpus while annuity starts on the balance 40 percent of the NPS corpus from any of the seven designated annuity providers.

The returns in NPS are linked to market performance and there are two options to mange funds – Active choice and the Auto Choice. Under the Active choice, there are three fund options – E, C, G. In (E), a maximum of 50 per cent of the portfolio is into equities; (C) is primarily into fixed income instruments other than government securities; (G) is primarily into government securities. If one is not comfortable in deciding, there is the Auto choice, under which the funds invested automatically begin with a maximum equity exposure of 50 per cent till the age of 35 years and then, tapers-off to 10 per cent by age 55. The fund management cost in NPS is 0.01 per cent. The lesser the cost, lesser it eats into the corpus during the accumulation phase.

Suitability