How To Select Policies Under New Pension Scheme To Suit You

29 Sep

NPS (New Pension scheme) has gained a lot of importance under DTC (Direct Tax Code). The procedures to open and operate an NPS account have already been described before.

Now’s the turn of describing ways to decide on policies to be selected under NPS with the help of the returns and the investment strategy provided by the funds. It’s just two out of seven funds being described here for the sake of simplification.

PFRDA, a pension regulatory body has been authorized to manage these funds which have now been opened for other citizens of the country as well along with the government employees.

For the citizens it’s an option to choose one among the six schemes where as for the state and central government employees there is just one and a mandatory scheme provided by the pension fund houses (excluding LIC).

Under each of the tiers, tier I and II three schemes are provided by these six fund houses. In case of Tier I account, you are bound to have a non-withdrawal pension account and for Tier II you may/may not have a savings account with the withdrawal options.

The schemes provided are E, G and C. If you need to invest in equity go for scheme E, for government bonds scheme G and for corporate bonds scheme C. Before selecting the pension fund house, you need to decide on any of the auto or active investment strategy.

If you want to invest funds in some particular proportion, you can do so by following the auto strategy which varies according to the age of the person. As your age increases, investments from equity shifts to government and corporate bonds. But to decide on the proportion yourself follow the active strategy which allows investing any amount of money in government and corporate funds with an upper limit of 50% of your total wealth to invest in equity.

These choices are available for government employees in Tier II only. 85-90% of the ’30 crore asset of NPS is in tier I, rest being in tier II.

SBI Pension Fund House: 65% of the AUM is under SBI pension fund house. Talking about scheme E, it’s better to invest funds in an index fund rather than SBI. The reason being return in case of index fund has been 14.5% as compared to 12.5% of SBI for the last six months. But for schemes C and G, the returns were 19.2% and 15.8% for tier I and 10.5% and 11.3% for tier II respectively.

UTI Pension Fund: 10% of the AUM is under tier I account of UTI while corpus worth just some lakhs is under tier II account of UTI funds. Under scheme E, UTI replicated Nifty 50 with absolute returns of 42.3% as compared to the 21.1% of SBI outperforming its rivals. But it didn’t performed the same for scheme C and G. It gave returns of just 10.2% and 8.9% in tier I C and tier I G.

Our opinion: NPS is expected to perform in a much better way, once its AUM gets large. One can opt for C and G schemes for safe investment. And in E if ready to take risks.