NPS Contribution: Confused in selecting investment options, fund manager? Don’t worry, default options can help you | The Financial Express

NPS Contribution: Confused in selecting investment options, fund manager? Don’t worry, default options can help you

Before making NPS contribution, you may get confused in selecting NPS fund options or the pension fund manager. Know the default options before you invest in it.

NPS Contribution: Confused in selecting investment options, fund manager? Don’t worry, default options can help you
In NPS,one needs to select the fund options, the pension fund manager, the investment strategy, the annuity provider and even the annuity scheme.

The National Pension System (NPS) is a defined contribution retirement savings scheme, managed by The Pension Fund Regulatory and Development Authority (PFRDA) and comes with several features and quite a handful of options. While filling the application form whether online or offline, one needs to select the fund options, the pension fund (PF) manager, the investment strategy and even the annuity provider.

The NPS fund performance is a function of selecting the right fund option and the right pension fund manager.

If, however, the subscriber doesn’t select any of the options under each such category, there is a default option provided by the PFRDA for each of them. Let’s explore them and see what it means for you as a NPS subscriber.

1. Selection of Pension Fund Manager

The selection of the PF manager is important as it will decide which entity is going to manage your NPS funds. You may select different PF managers for your NPS Tier I and Tier II accounts. At present, there are five PF managers – LIC Pension Fund, SBI Pension Funds, UTI Retirement Solutions, HDFC Pension Management, ICICI Prudential Pension Fund Management, Kotak Mahindra Pension Fund, Reliance Capital Pension Fund, and Birla Sun Life Pension Management.

Subscribers of All Citizen Model and Corporate Model may choose one of the PF managers from the list above. However, for the government subscribers, these three act as default PFs (a) LIC Pension Fund Limited (b) SBI Pension Funds Pvt. Limited (c) UTI Retirement Solutions Ltd.

No matter which PF manager one selects or even the default PF manager is chosen, all of them have to invest the funds as per the guidelines issued by PFRDA from time to time. As a subscriber, you have the option to change the PF Manager once in a year free of cost.

Default PF manager: The SBI Pension Funds acts as the default Pension Fund Manager. If you do not exercise your option to select any of the PF managers, by default SBI Pension Funds will be your fund manager.

2. Selection of investment option

There are two ways to invest in NPS – Active Choice and Auto Choice. Under Active Choice, the NPS subscriber can allocate funds amongst the various fund options as per one’s choice. The four fund options available are Asset Class E, Asset Class C, Asset Class G, and Asset Class A. Of all the fund options, Asset Class E investments are predominantly in equity market instruments with up to a maximum of 75 percent in equities. The other limits are – Asset Class C (100 percent in corporate debt) and Asset Class G (100 percent in government securities) and for Asset Class A (5 percent in alternate assets).

As the name suggests, under the Auto Choice also known as Lifestyle Fund (LC Fund), the allocation automatically changes based on age. Under Auto Choice, the subscriber has to choose any of the three life cycle fund options – LC 25, LC 50 AND LC 75.

Default investment option: If one does not select either Active Choice or Auto Choice, then the default option LC50 will be automatically selected. Also, known as Moderate Life Cycle Fund, in this Life Cycle Fund, the exposure in Equity Investments starts with 50 percent till age 35 and gradually reduces as per the age of the subscriber. Even if you select Active Choice but fail to mention the proportion of allocation into the E, C, G and A fund options, the LC 50 becomes the default choice.

3. Selection of Annuity Service Provider

Once the NPS subscriber reaches the age of 60, annuity or pension has to be purchased on maturity from a life insurance company with a minimum of 40 percent of the corpus. The balance 60 percent of the corpus can be withdrawn on the vesting age i.e. on maturity.

With the 40 percent of corpus, one will have to compulsorily purchase an annuity from any of the empaneled Annuity Service Providers (ASP), which are typically the life insurance companies. Currently, the ASP’s are Life Insurance Corporation of India, SBI Life Insurance, ICICI Prudential Life Insurance, HDFC Standard Life Insurance and Star Union Dai-ichi Life Insurance.

Default annuity provider: In choosing the ASP, Life Insurance Corporation of India is the default annuity provider.

4. Selection of Annuity Scheme

Once the annuity provider is selected, the annuity scheme has to be selected. It can be one of the following four options:
* Annuity for Life
* Annuity for Life with return of purchase price on death
* Annuity payable for life with 100% annuity payable to spouse on death of annuitant
* Annuity payable for life with 100% annuity payable to spouse on death of annuitant with return on purchase of annuity

Default annuity scheme: The default option of ‘NPS-Family Income option’ is only available for the government sector employees.

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