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Things to know about New Pension Scheme (NPS)

1. Where can you open your NPS account?
You can open a NPS account at any of the designated banks, post offices or brokerage houses.

2. Is there an initial fees?
A one time fee of Rs 40 is charged

3. What are the documentation requirements?
Carry your PAN card, Address proof, bank details and 3 photographs

4. What happens after opening an account number?
You will be alloted a Permanent Retirement Account Number (PRAN). This is a unique identification number given to your NPS Account. You have to pay a one time registration fee of Rs 50 followed by Annual Maintenance Fees of Rs 350.

5. What are the types of Accounts?
There are 2 types of Accounts Tier I and Tier II.

6. Tier I Account
Tier I account is a pension account and you cannot withdraw money from this account before you turn 60. After 60, you have to stop contributing and start withdrawing from it.

7. How do you withdraw the money from your Tier I Account?
You can withdraw 60% of the corpus as a lump sum or in a phased manner over the next 10 years till you turn 70. At least 40% needs to remain in an annuity for pension. At 70, the entire balance is withdrawn.

8. How do you deposit money in your Tier I Account?
You need to deposit at least Rs 6000 a year in Tier I account with minimum of 4 deposits in a year. It is not advisable to deposit too many small contributions as there is a transaction fee involved.

9. What about Tier II account?
A tier II account is more like a miutual fund and you can withdraw any amount ay time you want. However, you can only open a Tier II account if you have a Tier I Account. Tier II accounts require a minimum balance of Rs 2000. The management fee rate is 0.0009% (far too low than mutual funds). However, see exposure limitations in next point.

10 How about the investment and returns?
The returns on NPS varies and are not widely known. The funds may invest in Equities (E), Corporate bonds (C) or Gilts (G). The investor needs to decide how should be the allocation of the funds. If there is no declaration, there is a concept of automatic allocation of Investment.
E.g. Till the age of 35, 50% of the corpur will invest in Equities, the exposure to stocks will reduce progressively to 40% at the age of 40. by the age of 55, the exposure in equities will only be 10%. However, if the fund invests only 50% of corpus in equities, the exposure will reduce proportionately. i.e. 25% at the age of 35, 20% till 40 and 5% till 55.

Source: The Economic Times Wealth (7-feb-2011), Kolkata, India

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