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.

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 investor is 35 years of age. The proportion of the equity and corporate bond exposure comes down gradually to just 10% each by the time the investor turns 55 while that for government bonds rises to 80%.

The government included a provision in the PFRDA Bill that will allow a subscriber to invest in a scheme that offers a minimum assured return to be notified by PFRDA.

What happens to the NPS account when an employee leaves a job?

NPS offers a permanent retirement account number (PRAN) which is portable – the account number does not change after the change in job and the subscriber can keep contributing to this account. This differentiates NPS from its competitors like EPFO or even the bank accounts opened by an employer when a new employee joins an organisation. PRAN is of immense benefit to poor migrant workers as in the construction sector as also for the new generation job-hoppers.

How has NPS performed in terms of subscribers and returns?

The NPS subscriber base increased to 52.83 lakh by the end of August from just 4.3 lakh at the end of March 2009 as employees of 26 states, PSUs, private corporates and unorganised sector workers started enrolling. The NPS corpus has grown from just R2,277 crore in FY09 to R34,965 crore in August 2013.

The growth in enrolment was not without reasons as the NPS offered fabulous returns—the central government scheme offered 12.39% return in FY13 while the state government scheme offered 13%. The net asset value of NPS

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