How Money Grows in NPS
By Dr. Lalit Kumar Setia
The National Pension System (NPS) account can be
opened either through Point of Preference (PoP) corners or through eNPS web portal. The subscriber of
NPS contributes an amount every year in NPS account and the contributed amount
is invested by the pension fund managers through various schemes. In order to
ensure money deposited in NPS grow at substantial rate, the subscribers are
provided to make choices.
Choice of Investments and Exposure to Equity in NPS:
At the time of
registration, the subscriber is asked to give choice to adopt active or auto
mode of selecting the categories of investment i.e. Debt, Equity or Government
Securities. If the subscriber adopts Auto Choice, then on the basis of age of
the subscriber, the system ensures exposure to the equity. More the age, less
the exposure will be ensured to the equity. In Auto option, again subscriber is
provided three levels i.e. Aggressive means up to 75% exposure to equity,
Moderate means up to 50% exposure to equity, and Conservative means up to 25%
exposure to equity.
The exposure to equity
means the amount to that extent will be invested in the stock market and
subject to market risk for its growth. More the rise in stock market indexes,
more the growth will be and in case stock market indexes fall, there will be
risk of reduction in returns to that extent.
In case, a subscriber
wants no exposure or full exposure in the equities, he can adopt Active Choice.
In Active Choice, the subscriber can define exposure to investments to Equity,
Corporate Debt, Government Securities and Alternate Investment Funds (AIF). The
Government Securities are considered the safest zone of the investments while
the Equities are considered, the most risk prone zone of the investments.
Checking the growth in Money in NPS:
At the time of
registration, a subscriber is asked to select the Pension Fund Manager (PFM).
The performance of each pension fund manager can vary on the basis of his
exposure to different types of equities in the stock market. The subscriber can
check the performance of PFM and if required can change his PFM once in a
financial year. The PFM includes SBI Pension Fund Manager, LIC Pension Fund
Manager, ICICI Pension Fund Manager etc. Each Fund Manager performs in the
market and according to performance, his Net Assets Value (NAV) is computed. The
equities held, the NAVs of PFMs and returns in various schemes can be monitored
online at http://www.npstrust.org.in/return-of-nps-scheme.
Net Assets Value (NAV) in National Pension System:
The stock market opens
and closes on every working day and a lot of investments are made and withdrawn
everyday. On the basis of demand of the stock scrips, the holdings of Pension
Fund Managers, the NAV is computed at the end of each working day. The growth
depends upon the securities in which amount is invested and cash in the hands
of PFMs.
Old Pension Scheme vs. National Pension System:
However, both are different in nature, structure and benefit, but both are applicable to employees; therefore, compared.
The OPS is a defined pension scheme of Govt. of India, whereas NPS is a contributory pension scheme without any defined benefits.
In old pension, the benefits are fixed even the employees entitle to get enhanced benefits with increase in Dearness Allowance (DA). While under NPS, the pension is fixed keeping in view, amount of contribution, entry age, period of subscription, type of investment pattern opted by the subscriber, investment income accrued, percentage of total corpus utilized for Pension, Annuity option chosen and other relevant factors.
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