Till recently, investing in the National Pension System (NPS) meant a lot of running around. The Pension Fund Regulatory and Development Authority is now removing hurdles faced by investors. Many plan to join the NPS this year to avail of the additional tax deduction under Section 80CCD (1b). Here’s what you need to do to get started.
Getting started
As a first step, you need to register yourself with the NPS. Get an application form from a Point of Presence-Service Provider (POPSP) or download it from the NSDL website (npscra.nsdl.co.in). Fill up the form and submit it at any nodal office of an POP-SP.
Documents needed
You need to submit copies of proof of identity and residence (passport, Aadhar card, ration card, voter ID, driving licence, utility bills, etc) along with the application form. Carry the original document for verification by the POP-SP.
Apply online
The process is very easy if your mobile number is linked to your Aadhar card. Just log on to the NSDL website (enps.nsdl.com), key in your Aadhar number and you will receive a one-time password (OTP) on your registered mobile number. The OTP is for authentication. If validated, the investor’s details and photo are automatically filled up in the online form. He must also upload a scanned signature and a photograph if he doesn’t want the Aadhar picture.
a) Initial contribution: After you upload the form, you will be routed to a payment gateway for the initial contribution to your NPS account. The minimum amount is Rs 500. You can pay by debit or credit card or Internet banking.
b) PRAN card: After you make the payment, a Permanent Retirement Account Number (PRAN) will be allotted to you. In a few days, you will receive a welcome kit from the PFRDA containing a PRAN card, IPIN, TPIN and scheme details.
c) Submitting form offline: Take a print of the form you have filled online, paste your photograph on it and sign in the space for the signature. This form should then be sent to the Central Recordkeeping Agency at: Central Recordkeeping Agency (eNPS) NSDL e-Governance Infrastructure Limited, 1st Floor, Times Tower, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Link mobile to Aadhar
If your mobile number is not linked to your Aadhar, send a request to the UIDAI to update your mobile details. The form can be downloaded at uidai.gov.in/images/application_form_11102012.pdf
Choosing a pension fund
In the form, you will have to mention the pension fund you want to invest in. There are seven pension funds available to investors in the general category. An investor can switch to another pension fund only once in a year so choose very carefully. Go for a fund house that has consistently done well in the asset class you want to invest in.
Asset mix
You will also have to mention the asset mix for your investments. There are three classes of funds.
a) E class: These are equity funds that invest in stocks. Till now pension fund managers could invest only in Nifty shares in the same proportion as their weightage in the index. But now the PFRDA has allowed fund managers to invest in a broader universe of shares that are in the F&O segment. They are also allowed to invest actively and not stick to the index. You can’t put more than 50% in these funds.
b) C class: These are corporate debt funds that invest in bonds issued by companies. Though the PFRDA keeps a very strict watch on the quality of the holdings, some fund managers have in the past invested in low-rated bonds to earn higher returns. This can be a risky move and PFRDA has penalized funds that have followed such practices.
c) G class: These are gilt funds that invest in government securities. Though there is no default risk, these funds typically invest in long-term bonds that are very sensitive to interest rate movements. These funds have done very well in the past one year because rates are coming down. But in a rising rate scenario, they could even churn out losses.
Auto choice
This option suits investors who are unsure about the asset mix. The asset allocation here depends on the age of the investor. Till the age of 35 years, 50% of his corpus will be in the equity funds and the rest in corporate debt and gilts.
Every year, 2% of the assets in the equity fund and 1% of the assets in corporate bonds will be shifted to the gilt fund. In five years, by the time he is 40, the equity exposure of his NPS corpus would be down to 40%. By the time he is 55, he would have only 10% in equities, 10% in bonds and 80% in gilts.
How NPS funds have fared
