Strong case for NPS

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India's pension sector has the potential to grow exponentially in coming years as the retiring population is set to grow from 61.1 million currently to 205.7 million by 2050. Reuters India's pension sector has the potential to grow exponentially in coming years as the retiring population is set to grow from 61.1 million currently to 205.7 million by 2050. Reuters
SummaryAny defined benefit scheme puts an undue burden on the fisc if it has to expand coverage in a populous country.

exemptions during the contribution and accumulation stages.

What's the rule on contribution towards NPS?

The government staff who joined NPS since 2004 contributes 10% of their salary towards NPS. For individuals working with private companies in the organised sector, the minimum contribution is Rs 6,000 per annum. The workers in the unorganised sector has to contribute a minimum R1,000 and maximum Rs 12,000 per annum in a special scheme Swavalamban, where government pays a subsidy of R1,000 for each individuals.

Who manages the NPS funds?

PFRDA has so far allowed three pension fund managers (PFMs) promoted by government-owned financial institutions—LIC, SBI and UTI AMC—to manage the NPS corpus of government staff. Apart from the PSU PFMs, the PFRDA has also allowed private PFMs floated by ICICI Bank, HDFC, Reliance Capital, Kotak Mahindra Bank and DSP BlackRock to manage the savings of private sector employees in the private firms. For offering annuity to NPS subscribers after retirement, the regulator has empanelled seven life insurers—LIC, SBI Life, ICICI Prudential, Bajaj Allianz Life Insurance, Star Union Dai-ichi Insurance, Reliance Life and HDFC Standard Life.

Where do the fund managers invest the pension money?

PFRDA caps investment of pension funds in equity at 50% while there is no restriction for investment in government or corporate bonds except in case of a default or “auto choice” scheme. Investors can choose their portfolio mix as per their risk appetite. For instance, the younger generation can invest up to 50% in equities and the remaining half in corporate bonds to reap the benefits of higher returns even though it comes with higher risks. As the retirement age nears, an investor can cut equity exposure and switch to government bonds which are safe to conserve his/her wealth.

The option to invest heavily in equities and corporate debt gives the investor an opportunity to let the NPS corpus grow faster than other forms of investment such as fixed deposits, small savings, EPF and PPF. The facility to switch the portfolio any time of the year also helps the investor avert the risks of a downturn

What if a subscriber can't make a portfolio choice?

To assist those who are not so market savvy and may not be able to strike a balance between risk and return, PFRDA offers the “auto choice” scheme where the equity exposure is as high as 50%, investment in corporate bonds is 30% and government bonds at 20% until the

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