NRIs can now apply online for National Pension Scheme

• The Government has announced that non-resident Indians (NRIs) can now open National Pension Scheme (NPS) accounts online.
• India has the second-largest diaspora in the world, with around 29 million people living in over 200 countries and out of these 25 per cent live in the Gulf countries.
• Requirement to open an account is an Aadhaar or PAN card.
• NRIs will get to open these NPS accounts on both repatriable and non-repatriable basis.
• On a repatriable basis, an NRI will have to remit the amount through his/her NRE/FCNR/NRO account.
• For Non-repatriable scheme, NRIs will be able to join NPS through their NRE/FCNR/NRO accounts. At the time of maturity or during partial withdrawal, the NPS funds would be deposited only in their NRO accounts.
• Both repatriable and non-repatriable schemes will greatly appeal to NRIs who intend to return to India after their employment abroad, in view of their attractive returns, low cost, flexibility and their being regulated by the PFRDA (Pension Fund Regulatory and Development Authority), a regulator established by the Central Government

About NPS

• New Pension Scheme (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers/investors help save for their retirement through systematic savings during their working life. Earlier it was offered only to government employees. The scheme has extended to all, non-government employees or self employed.
• NPS is regulated by Pension Fund Regulatory and Development Authority (PFRDA).
• Under the NPS, individual contributions/savings are pooled in to a pension fund which are invested by PFRDA regulated professional fund managers as per the approved investment guidelines in to the diversified portfolios comprising of government bonds, bills, corporate debentures and equities. These contributions would grow and accumulate over the years, depending on the returns earned on the investment made.
• At the time of normal exit from NPS, the subscribers may use the accumulated pension wealth under the scheme to purchase an annuity from a PFRDA empanelled life insurance company apart from withdrawing a part of the accumulated pension wealth as lump-sum, if they choose so.

Analysis:
What are the advantages?

• Flexible: The NPS offers a range of investment options and choice of Pension Fund Managers (PFMs) for planning the growth of your investments. Individuals have the choice to switch over from one investment option to another.
• Portable: The NPS provides seamless portability across jobs and locations, unlike all current pension plans, including that of the Employees’ Provident Fund Organisation (EPFO).
• Regulated: The NPS is regulated by the Pension Fund Regulatory & Development Authority (PFRDA), with transparent investment norms, regular monitoring and performance review of fund managers by the NPS Trust.
• Dual benefit of low-cost and power of compounding: Account maintenance costs under the NPS are the lowest, compared to similar pension products available in India.
• A safe retirement fund: Introduced by the Government of India and regulated by the PFRDA makes the NPS a safe investment option for your sunset years.
• Tax benefits on Individual/ Employee contribution

Disadvantages:

• The tenure of the investment is very long.
• In TIER I, the investor cannot withdraw the fund before 60 years of age
• The investor has to opt for a compulsory annuity
• Exposure to equity is a maximum of 50%. Therefore, it is slightly conservative for the high return seeking investors.
• Proceeds upon maturity will be taxed
• High documentation required at the time of opening
• No guaranteed interest rate of returns
• Minimum contribution of Rs 6,000 annually to keep account active
• Complexity in choosing pension fund manager and starting account
• Entire corpus taxed on withdrawal (EET)
• Annuity payouts may not be able to protect you from inflation,
• Equity exposure, irrespective of the investment option chosen, is capped at 50%. Approach may not be optimal for young individuals.
• Limited liquidity: At the moment, partial/premature withdrawals are not allowed. One has to completely exit the scheme to get the money out.

By: Vishal