NPS Returns for 2019 - Who is Best NPS Fund Manager?

What is Scheme Preference in NPS Account?

In the NPS scheme you will be offered two types of choice to build your portfolio. You can either pick your own asset allocation or outsource it to the pension fund manager. Let’s find out how they work:

The investors can choose their scheme references under these two options:

Active choice: under this option, the investors can choose the desirable split of the NPS deposit. The investor can choose between asset types namely Equity, Corporate debt, Government Bonds and Alternative Investment Funds on his own.

The investor must keep in mind that the equity allocation cannot exceed 75% of the total corpus and this percentage is valid up to 50 years age, post which the equity allocation decreases as per a defined matrix.

Auto choice: this is a default option under NPS wherein the funds invested are automatically managed based on the profile of the subscriber. There is a set of a defined matrix of the allocation of fund as per the investor’s profile under the auto choice as well. Investors who have limited knowledge about investing in market-linked products must choose this option until they acquire knowledge on equity investment.

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See Also: Benefits of National Pension System

What are the types of funds available in NPS?

There are four assets classes available under the NPS which can be classified as the following:

• Asset class E: This scheme mainly invests in equities and related instruments. This asset class is riskier than the other asset classes.
• Asset class G: This scheme mainly invests in fixed income instruments like government bonds and related instruments. This is the most secured investment type among all the classes and it mainly invests in central government bonds.
• Asset class C: This scheme mainly invests in debt instruments like corporate debt and related instrument. These funds are mainly issued by firms and companies. These do not contain risk like asset class C and not completely safe like asset class G.
• Asset class A: This is a new fund category that has been introduced as an alternative investment. Alternative Investment Funds including instruments like CMBS,· MBS, REITS, AIFs, Invlts etc.

So, basically under NPS, there are four Asset Classes namely Equity, Corporate debt, Government Bonds and Alternative Investment Funds from which the allocation is to be specified under single Pension Fund Manager. 

List of NPS Fund Managers:

An NPS subscriber must choose a fund manager as well as the preferred scheme while registering for the CRA system under NPS. There are 8 pension fund managers operating in India. They are as follows. The subscriber must first select the pension fund manager and after that, they will be provided with the option to choose the investment options.

• Birla Sun Life Pension Scheme
• HDFC Pension Fund
• ICICI Prudential Pension Fund
• Kotak Pension Fund
• LIC Pension Fund
• Reliance Capital Pension Fund
• SBI Pension Fund
• UTI Retirement Solutions

The NPS account and contributions of the government employees are managed by SBI pension, UTI and LIC pension funds. In this category, 15% of the contributions will be invested in equity funds. The rest of the contributions will be invested in corporate bonds and government securities.

Private sector employees can also invest in this scheme. For the private sector, the equity investment limit is 75%. Investors can change their fund managers once a year by evaluating their past performance.

See Also: Simply Invest In NPS Online

NPS Tax Benefits 2019:

NPS is one of the best financial instruments as it comes with tax saving options. However, many people still fail to understand the tax benefits provided by the NPS scheme.  Listed below are the different sections under which an individual can avail tax benefits by investing in NPS.

Tax benefits on NPS investment:

• Subscribers can avail tax benefits on investment under section 80C of the income tax act, 1961. The maximum deduction allowed under this section is up to Rs. 1.5 lakh in a financial year
• The investors can claim an additional deduction of Rs. 50,000 over and above the Rs. 1.5 Lakh limit under section 80CCD (1b).
• The employer contribution to NPS account is also eligible for a tax deduction. Tax benefits can be claimed on the contribution by the employer up to 10% of the basic salary of the employee under section 80CCD (2). This deduction is not available for self-employed.

See Also: How Does National Pension Scheme Work?

Tax benefits on NPS returns:

• The returns generated on NPS investment are market liked and so the returns depend on the performance of the equities market. So the returns earned from NPS investment are completely tax-free.

Tax benefits on NPS maturity:

• The NPS account matures at when the investor attains 60 years of age. The investor can only withdraw a corpus of 60% of the total accumulated amount at the time of maturity. The remaining amount is utilized to purchase an annuity plan.
• Out of the 60% corpus that can be withdrawn, 40% is tax exempted and the remaining 20% is taxable. However, from the year 2020-21, the government has announced tax benefits on the entire 60% corpus that can be withdrawn. So from the year 2020 onwards NPS may become completely tax-free investment product.

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