NPS turns to selective investments to make returns attractive

Fund managers of the National Pension Fund Scheme (NPS) have managed to give high returns to investors through selective investments in high yielding equity stocks from the Nifty basket and 'AAA'-rated securities in the debt market.

However, investments in NPS would remain more or less locked despite the concessions extended by the Pension Fund Regulatory and Development Authority (PFRDA) on part withdrawal of funds by pension subscribers.

To make NPS attractive, the government in the 2015-16 budget granted additional tax deduction of Rs50,000 to contributions made to the National Pension System (NPS).

The main issue for subscribers of NPS is that it is illiquid. Unlike the Employee Provident Fund (EPF), which allows withdrawal of money when a person moves from one job to another or for reasons such as illness or child's education, NPS allowed withdrawal only at the age of 60 years.

If contributore to NPS chose to withdraw before the age of 60, then they should agree to conversion of 80 per cent of the amount into an annuity.

To make it more attractive, PFRDA has made some modifications in the withdrawal rules and allowed individuals who have been making contributions to NPS for 10 years or more to withdraw up to 25 per cent of the corpus.

However, such withdrawals have been allowed only on four grounds. These include children's education, marriage, purchase (or construction) of a residential house, or treatment of any illness (either of the individual himself, his spouse or children) for any of the 13 critical illnesses, including cancer, kidney failure, paralysis and heart surgery, for which withdrawal claims will be accepted.

Also, only a maximum of three withdrawals will be allowed and that too at an interval of five years. But, in the case of illness, the stipulation that five years should have elapsed from the previous withdrawal will not apply.

The new regulations say that corporate subscribers (who contribute through their employer) and normal citizens (other than those subscribed for NPS Lite and Swavalamban), if they so desire, can continue to contribute and keep money invested in the NPS account and not withdraw it till the age of 70.

However, a subscriber should inform the concerned authorities at least 15 days prior to the attainment of superannuation and agree to bear the fund management and other administrative expenses.

There is also an option to defer the purchase of annuity by three years from the date of exit. Earlier, 40 per cent of the amount was to be converted into annuity at maturity.

Also, if the corpus is less than Rs1 lakh at maturity (in the case of corporate subscribers and normal citizens) one can withdraw it completely and not necessarily buy an annuity at the time of exit.

The subscriber's money in the NPS account is also not liable to seizure or attachment by a court on application of a creditor.