Friday, July 5, 2013

Corporate NPS

Let me now dwell on one of the most attractive investment products, which unfortunately has been off the limelight – The Corporate NPS (New pension scheme).  I believe, lack of awareness could be one of the prevailing reasons for its non-scalability.
As we all know, NPS is available to all Indian citizens on a voluntary basis w.e.f 1st May 2009 in his/her individual capacity. However, in order to provide larger impetus, PFRDA (Pension Fund Regulatory & Development act) introduced a separate model to the employees of the corporate entities including public sector undertakings since December 2011 named NPS – Corporate sector model.
This facility is extended to almost all category of entities say Private, Public Ltd, Proprietary, LLP, Society Trust etc. with no minimum restriction on employee strength and the contribution being as small as Rs 6000.00 per person per financial year. Product offerings are fairly simple to choose viz,. Equity, Corporate Bonds & Government securities based on one’s risk taking ability. The default option is ‘auto choice’, where   the investments would be made in a life cycle fund across all the three asset classes in a pre-defined portfolio based on the age profile of the investor. For instance, up to 35 years of age, 50% weightage goes to equity, 30% & 20% allocation towards corporate bonds & Government securities respectively. Progressively with age, the allocation towards risky assets comes down increasing the weightage to safer assets.
The characteristic feature that stands out is the tax benefit up to 10% deduction on the Basic+DA of the employee’s contribution without any upper ceiling, in addition to the one lakh benefit available under section 80C. On the contrary, voluntary NPS contribution in the individual capacity would fall under section 80C limit. In simple words, if the employer deducts 10% (max allowed) towards NPS, it does not count for the taxable income irrespective of your tax slab. All that you need to do is a minor re alignment in your current CTC by removing some taxable components to accommodate NPS.
The recent press release by PFRDA for NPS (private) - non-government employees for the financial year 2012 – 13 has demonstrated sound double digit returns, which fares better than EPF/PPF.
Weighted average returns of 6 private NPS
Corporate debt
Government debt
Upon attaining the age of 60 – 70, you can withdraw 60% as your lumpsum and the remaining in annuities. For earlier withdrawal , the ratio (80%) is tilted towards annuity. In case of any untoward eventualities, nominee would receive 100% of the pension wealth as lumpsum. Other distinctive features that support the offering are low cost (0.25 - 0.35%), convenience, flexibility, transparency & discipline.
I emphatically conclude that there is no better platform than the corporate NPS to channelize long term retail money into capital markets.  
Happy investing!
Disclaimer: No content on this blog should be construed to be investment advice. You should consult a qualified financial advisor prior to making any actual investment or trading decisions. All information is a point of view, and is for educational and informational use only. The author accepts no liability for any interpretation of articles or comments on this blog being used for actual investments

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