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Decoding Government’s National Pension System (N.P.S.) For Dummies


Pensioners alert.

If you are a working individual looking to save for your (sorry) future and decided where your pension fund is invested, National Pension system is the jargon that you have to start using. N.P.S. gives an opportunity to invest and accumulate savings and get returns on investment which are considerably higher when compared to Provident funds and Mutual funds.                        

So why is it that N.P.S. is known to only a chosen few individuals (not all Government schemes are bad).


Pension Fund Regulatory and Development Authority (P.F.R.D.A.) is an autonomous body set up by the Government of India to develop and regulate the pension market in India.

National Securities Depository Limited (N.S.D.L.) is the record-keeping, administration and customer service functions for all subscribers of the N.P.S. which is acting as the Central record keeper for the N.P.S..

Point of Presence: The P.F.R.D.A. has authorized 58 institutions including public sector banks, private banks, private financial institutions and as Points of Presence (P.O.Ps) for opening the National Pension System (N.P.S.) accounts of the citizens.


N.P.S. has been provided for all citizens of the country including the unorganized sector workers on voluntary basis. Digressing from the customary cloudy and complicated doings of government schemes, N.P.S. is transparent (at-least on paper) where employees are allowed to know the value of their investment (mistakes) in various asset classes on a daily basis. Cost effectiveness is another thing which makes N.P.S. a viable option. It levies a nominal investment management charge of 0.250% on net assets under management (A.U.M.). For example, you have decided to invest your pension worth Rs.10,000 in debt instruments of a company. You will be charged a fee of Rs.25 upfront.                                                                                                                   

The N.P.S. account is portable and remains the same irrespective of change of employment or geography. On joining N.P.S., each Subscriber gets log in ID and Password of N.S.D.L. system for accessing N.P.S. details online. It offers choice of Service Providers, Funds, Investment Options, Pension Fund Manages, Annuity Service Provides and Annuity Plans to Subscribers. It offers Subscribers freedom to switch the Service Provider, Fund, Investment Option and Pension Fund Manager. On retirement, at age 60, subscribers are required to invest at least 40% of their pension fund in an annuity and the remaining 60% can be redeemed as a lump sum. In the case of government employees, the annuity provides for pension for the lifetime of the employee and his dependent parents and spouse at the time of retirement.

All of this seems to be a fairy-tale when we compare N.P.S. to a Mutual fund. Due respect to our (very) talented fund managers but Mutual funds can be a shady business for amateurs apart from the fund management charges they levy i.e. 1.25% of your investment.



As per the investment guidelines finalized under N.P.S., pension funds can be invested in: Equity, Government Securities or Corporate Debt.      

In case you do not exercise any choice with regard to asset allocation, the contribution is invested in accordance with the ‘Auto choice’ option. Here the investment is determined by a predefined template that allocates funds according to the average expectation of investors at different stages of their life.                                                                                                                                             

So if you are below 30, it is assumed that you won’t get distressed by fluctuations in equity prices .But if you are above 50, Government issued securities are the only option for you with right mix of quality company bonds.

The other option for a subscriber is to invest as per his ‘Active Choice’ which allows him to allocate his investments across the 3 asset classes. As a conservative investor, one can invest his complete pension wealth in C and G asset classes. However, if one wants to have an exposure to equity, then he can allocate a maximum of 50% of his assets to the asset class E.




With an average weighted return of 12%, National Pension System is a viable piggy-bank for employees looking to accumulate their savings for retirement. With online regulation and government backing, N.P.S. unlocks the potential of pension savings.

Since you’re at it, you will also like reading :

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