The National Pension System (NPS) is considered to be one of the best investment tools for retirement planning in India. The Pension Fund Regulatory and Development Authority (PFRDA) has undertaken various measures to make NPS more subscriber-friendly, ever since its rollout in 2008-09.
While investing in NPS, investors can spread their investments across 4 asset classes: G (government securities), A (alternate assets), C (corporate debt), and E (equities). One can choose from auto and active choice for deciding one’s allocation across these classes. In active choice, the investor himself decides how much allocation should be put to different asset classes. Until the investor decides to change it, the allocation remains constant.
Under the auto choice, however, investors can choose from any of the three lifecycle funds – aggressive, moderate, and conservative. In these life cycle funds, based on the subscriber’s age, allocation to various asset classes changes. In the conservative fund, equity allocation is 25 per cent until 35 and then declines to 5 per cent by age 55. In the moderate fund, allocation to equities is 50 per cent until 35 and then declines to 10 per cent by 55. And in the aggressive life cycle fund, allocation to E is 75 per cent until age 35 and then declines to 15 per cent by 55.
Earlier, allocation to equities under the active choice option was capped at 50 per cent. NPS now offers 75 per cent equity allocation under both the auto-choice and active-choice options.
Industry experts say NPS allows younger investors to have higher exposure to equities, and hence, they can earn higher returns as this scheme is used for a long-term goal like retirement. It will also enable the returns from the NPS portfolio to beat inflation. Experts add, if held for a long period of time, equities are the only asset class that can generate higher returns.
In this tax-saving season, NPS is increasingly gaining interest from the taxpayers. However, before investing in NPS, investors should look at their overall portfolio’s asset allocation which includes direct equity investments, mutual funds, etc. to ensure that their overall portfolio does not become too risky in case they plan to hike equity allocation in NPS. Many investors are also looking to open an NPS account online.
If you are planning to open an NPS account online, find out how it can be done through the PAN-based registration.
1. You will need a scanned copy of PAN, copy of canceled cheque, and bank account number that you want to link with your NPS Account.
2. Visit the eNPS website, (https://enps.nsdl.com/eNPS/NationalPensionSystem.html)
3. Click on ‘National Pension System’ option.
4. Register as ‘Individual Subscriber’
5. Put your PAN details
6. After you select the bank, your KYC verification will be done and a one-time fee around Rs. 125 (plus taxes) will be charged from your bank account as KYC authentication charges.
7. Select Generate Acknowledgment No. to proceed.
8. Enter your FATCA details.
9. After which you will be needed to enter your address along with your bank details
10. You can then choose your Pension Fund Manager and Investment Option from the drop-down menu, which can be changed later.
11. You then need to upload a scanned copy of PAN and a canceled cheque and the Permanent Retirement Account Number (PRAN) gets generated.
12. Then to complete the process, you need to eSIGN Registration Form.