Apr 24, 2010

What makes NPS different from other saving schemes?

Why the New Pension System / Scheme (NPS) has failed to take off? The main reason cited is the low awareness level. So here The Money Quest will try to make a sincere attempt to educate people about the actual working of New Pension Scheme (NPS). To start with, this post will throw a light on what makes this pension scheme unique.

NPS Comparison with existing retirement saving schemes
Unlike government sector, where employees are entitled to regular pension after their retirement, private sector employees
have to make their own arrangement for meeting their income / expense need post-retirement.

Although Employees Provident Fund (EPF) & Public Provident Fund (PPF) are there, but both these schemes provide only lump sum withdrawal and chances remain high that after withdrawal, majority of the corpus might be frittered away due to lack of human self-control. The Employees Pension Scheme (EPS) 1995 under EPF provides a negligible pension and makes a mockery of the word ‘Pension’. At present, the only available pension option for private sector employees is to buy a deferred annuity plans from life insurance companies but the costs involved are too high.

In majority of cases, the EPF money doesn’t last till retirement because most people withdraw it while changing jobs and the lock-in period of PPF is also too low (just 16 years), as a result this money also get finished (to meet other life goals) even before reaching the stage of retirement.

On the other hand, under NPS, at the time of maturity, you’ll have to compulsorily buy a life annuity which will ensure a regular periodic income. Moreover, unlike assured returns provided by EPF & PPF, returns from NPS would vary depending upon the investment option chosen and the quality of the fund management. The best part is that it allows you to invest some part of your savings in stocks which definitely enhances the returns in the long term.

Current Worries
The major worry about this New Pension System is the differential tax treatment of EPF / PPF and NPS. But once Direct Tax Code (DTC) kicks in there will be a level playing field. Either PPF & EPF will come under EET regime or else NPS will also get EEE status. So it’s just a matter of time before the tax treatment is uniform.

The other worry is about the high administrative & record-keeping cost to be borne by the investor. To mitigate this concern, budget 2010 announced the annual subsidy of Rs 1,000 p.a. for 3 years in case of investors depositing not more Rs 12,000 p.a.

Other Benefits
Besides, there are so many other benefits associated with this pension scheme like flexibility, portability, transparency, lowest (almost negligible)fund management charges, switching facility and option to open a second account (TIER II Account) without any lock-in which makes NPS one of its kind and truly unique long term saving scheme not to be missed. The best part is that you can surely expect better returns than what you currently receive from EPF or PPF.

So, The Money Quest verdict is a thumping YES. Go and open an account right away. I’ll be writing more about this scheme over a period of next few months… stay tuned.

To know the detailed list of locations for opening NPS account click here.

Also see:

1. Impact of DTC on PPF
Is it worth investing in KVP?
What is the right time to buy a home?


  1. Have you opened a NPS account yet . Can you please suggest which bank / agency is best to open a NPS account.

  2. Debashish,

    List of various banks / agencies where you can open a NPS account is given in the link mentioned above (Just above the comment section).

  3. A few queries:

    1. What is the role of a POP in NPS? I was checking the link to see the nearest location in my home town - Palakkad and I could see South Indian Bank. Is there a tie-up between and the Pension Fund Managers or can we select any Pension Fund Manager from these POPs?

    2. Do we have any clear comparison/assessment of the various Fund Managers so that we can decide which Fund Manager to choose?

    3. The PFRDA Bill is not yet passed. Is it safe to invest in this product, without a legal provision in place?

  4. I am aware of the list of agencies , just wanted to know if you any one has first hand experience of opening a NPS account , and what are the points to consider before choosing one.

  5. Pradeep,

    Point-wise reply to your doubts:

    1. To enroll in NPS, you need to submit the registration form to the POP-SP of your choice. Role of POP is only to receive the application form and do the KYC. The other major function is to receive the contributions for onward remittance to NPS trust.

    2. Although Pension Fund Managers (PFMs) are required to strictly follow the investment guidelines, still there can be some variation in the performance. Here also as the equity investments can be made only in index funds, the chances of too high variation in the performance are very low. Anyway, PFMs are publishing NAVs on daily basis; you can see it either from their respective websites or the NSDL website (www.npscra.nsdl.co.in). Furthermore, in future, if you’re not satisfied with the performance of your Pension Fund Manager, you can switch to other fund manager. So nothing to worry about!

    3. Don’t worry; it will be passed in due time. Do you know that Sebi also received the legal mandate four years after it was formed?

  6. Debashish,

    Does it make any difference whether you’ve a savings account in HDFC Bank or ICICI Bank?

  7. @Fisher ,
    Yes is matters , particularly the customer-service of the banks . I prefer ICICI over HDFC any day .
    I'll repeat my question , have you opened a NPS account , if yes where and how easy it was ?

  8. Hi,

    Indeed good information about NPS. You have written positive points, someone here written good negative points about it and after reading those, I'm not very keen to open a NPS account
    Source: http://www.subramoney.com/2010/04/national-pension-scheme-what-is-missing/

  9. What sort of choices will be available as to how I want my funds managed?

    What is to prevent this from turning into another UTI, i.e. fund managers doing the bidding of the GoI? I suppose it will not be possible to artificially keep valuations high this time around.

  10. Hi,
    I am Delhi based, name is Sunil Kumar a Certified Financial Planner and I have opened my NPS account with CAMS.
    I believe this is one of the best offer to common people to plan for retirement. This is the result of a study by the name of OASIS Project set by GOI in 1998. (Search on Google for details)
    The account opening is very easy provided you present yourself with all required documents two photocopies and original(Pan Card, Address Proof like voter ID and Date of birth proof like 10th class certificate) and One PP color photo for KYC.
    I preferred CAMS as I visit them regularly in connection with my advisory .
    You can contact me at letsgrowrich@gmail.com or visit my website www.minabazar.njfundz.com

  11. Hi Fisher,

    Thanks for the first hand information on NPS. My queries

    1. What is the interest rate, how it is calculated (quarterly, half yearly, annually)
    2. What happens to the accumulated savings in the NPS account. How much can be withdrawn upfront and what is method of getting monthly pension



  12. AnonymousMay 07, 2010


    I saw your blog mentioned in MINT.

    I was wondering if you could answer this question running in my head about the difference in a traditional fixed deposit and a cumulative fixed deposit.

    I recently saw this ad by Mahindra offering a high interest FD on moneycontrol.

    However they offer a lower rate on cumulative while its yield is better than a traditional FD. Is this a normal thing or is there something we are missing?

    Looking forward to your reply.

  13. S.SRIRAMMay 09, 2010


    can we fill up nps form on line as well as make payment regarding the ids to be given along with the form it can be send by mail also.

    Please advice


  14. I opened an NPS account last month through CAMS Gurgaon.

    The necessary information is available at the PFRDA web site . One can get all the details at CAMS web site .

    I downloaded the subscriber registration form and submitted it with a colour photograph, copy of ID proof, address proof, cheque of minimum subscription amount (Rs. 1500) and a cancelled cheque (to activate Tier II account) to CAMS office. I selected "SBI Pension Funds Private Limited" as the Pension Fund Manager in the form. The detailed instruction for complete the form is given on page 7 of the subscriber registration form. The CAMS person took a while as it was his first case to open an NPS account, otherwise the processing took place very smoothly.

    I received the PRAN (Permanent Retirement Acccount Number) card, Internet and Telephonic PIN in separate packets after approx two week from NSDL who is the Central Record-Keeping Agency for NPS. One can keep track of the fund value through online access on using IPIN or calling the toll-free # 1800222080 and using TPIN.


  15. AnonymousMay 14, 2010

    Hi there you can open your account in any POPSP. I suggest to open with CAMS,, because also offering a automatic debit service from bank account through ECS. You can easily subscribe for a quarterly investment to NPS and dont have to visit the office multiple times for subscription. NPS you have to make min 4 transactions in a finacial year..

  16. AnonymousMay 25, 2010

    Dear Money Quest,

    Thanks for educating your readers about NPS.

    Will somebody smarter than me give this information.

    In Equity asset class the two indices being offered at present are Sensex and Nifty. Are these total return indices?

    In total return the index investor gets the benefit of dividend income. If it is normal index then only the fund manager gets the dividend income benefit, which he may or may not credit to the investor.

    The Right to this information will improve the decision making of all Indian NPS account holders.


    One of the 3Idiots

  17. Have you opened an account yet. I have a feeling that all those who keep singing praises of the NPS have no personal experience of opening an account.

    Monika Halan had also written in Mint that it is a good account to open for your domestic help. Which is bunkum given the Rs 6000 minimum contribution per year.

    In any case can anyone tell me the charges of POP, CRA and Fund Manager. I understand the Fund Manager charges are the lowest in the world but what about the others?

  18. AnonymousJuly 19, 2010

    Actually NPS is a good retirement tool especially now with Exempt Exempt Exempt option. Only drawback is that one cannot withdraw money before the retirenet age. Read this article: http://www.fundsupermart.co.in/main/research/viewHTML.tpl?articleNo=377

  19. I have opened NPS with IL&FS at Bangalore. Though opening A/c was easy, it is surprising that they do not have ECS mandate. When I asked for ECS they say that I have to go to the Bank personally and get the ECS mandate signed by Bank Manager.
    This is just another reason why NPS is not popular. Either the POP does not know their responsibilities or PFRDA has not given clear directions as to who will do the leg work for ECS mandate.

    Also, there is no facility to transfer money online and buy additional units.

    What should people residing in far off places do?

    The online A/c does not have amy menu to generate statement of transactions for last 12 months.

  20. It is a pain to go to the POP four times in a year and make the deposit. If all the POPs can't provide ECS facility, there should be a facility for members to transfer money online directly to the chosen Fund Manager.
    The PFRDA needs to get this rectified at the earliest. It would be better to get the Fund Management companies offer the online payment option to those having the Permanent Retirement Account Number (PRAN).

  21. I have opened NPS last month from the Chennai Post Office , I have the same problem of remitting 4 times a year , Is there any ECS Fcility or online payment option for this , what is CAMS , is it a bank , any web site details for this.

    Is ICICI a POP and do they accept ECS or online payment.

    After opening the account in a post office , can we change teh place where we remit the money which has ECS facility or elsewhere.

    Please educate me , my e- mail : ndkrishnan_1964@yahoo.com and mail your reply to enable me receive the same

  22. i have opened NPS through ICICIdirect with 10000rs. But now they are saying they have not activated 1000rs as subsidy as annoused by government in budget. So, is it relevant and depend upon banks to bank?
    Secondly, i have not recieved any IPIN and Tpin no. even after 20days has been passed, So what can i do to get these above two. Brahm kumar

  23. Dear Fisher,

    Can you clarify the benefit on NPS in the latest budget? Heard employer's can expense out contributions to employee's NPS account?

    So does that make it a useful investment avenue?

  24. I am a Central Govt. employee.My tier I account is opened.But I want to know if it is good to put one's money in tierII or would it be a better option to put the money in say a savings bank account.Basically I want to know about the advantage Tier II account will provide as compared to a savings bank account.
    Timple Sughandh.


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