NATIONAL LAW UNIVERSITY, JODHPUR

School of Insurance Studies

GROUP INSURANCE

Project Report on:

NATIONAL HOUSING BANK
REVERSE MORTGAGE SCHEME

Submitted To: Submitted By:

Dr. Seema Arora Khusboo Balani
School of Insurance Studies MBA Insurance- IV
Roll No. 1060

2018-20
 ACKNOWLEDGEMENT
First and foremost, I am grateful to my advisor Dr. Seema Arora for the academic guidance
and strong support she gave me. I particularly appreciate her patience and willingness to help
me at all time without which this project on “National Housing Bank Reverse Mortgage
Scheme” would not have been completed.
I would like to express my gratitude towards my parents for their kind co-operation and
encouragement which help me in completion of this project.
My thanks and appreciations also go to my friends in developing the project and people who
have willingly helped me out with their abilities
 Table of Content
Chapter Chapter Name Page no.
No.
1 Introduction To National Housing Bank(NHB)
Reverse Mortgage Scheme
2 NHB Reverse Mortgage Scheme
Features And Calculator
3 NHB Reverse Mortgage Scheme:
Operational guidelines
4 NHB Reverse Mortgage Schemer Loan
Disbursement, Settlement Of Loan, Loan
Covenants, Foreclosure
5 NHB Reverse Mortgage Scheme
Counseling And Information To Borrowers

6 Introduction To NPS (National Pension Scheme)

7 R Registration Process For NPS

8 Types And Investment Options In

National Pension Scheme

9 Conclusion And Suggestions

 CHAPTER:1

INTRODUCTION TO NATIONAL HOUSING BANK(NHB)

REVERSE MORTGAGE SCHEME

Reverse mortgage is a financial product that enables senior citizens (60 +) who own a house
to mortgage their property with a lender and convert part of the home equity into tax-free
income without having to sell the house.

Instead of you making monthly payments to a lender, as with a regular loan, the lender makes
payments to you. Multiple options are available for repayment of the loan in lumpsum at the
end of the loan term. Maximum period of loan is of twenty years. The loan is not required to
be serviced as long as the borrower is alive and in occupation of the property. On the
borrower’s death, the loan is repaid through sale of property.

Senior Citizens are an increasing component of the Indian society and dependency in old age
is increasing in the country. While on the one hand, there is significant increase in longevity
and low mortality, on the other hand cost of good health care facilities is spiraling and there is
little social security. Senior Citizens need a regular cashflow stream for supplementing
pension/other income and addressing their financial needs. Secular increase in residential
house prices has created considerable “home equity" wealth.For most Senior Citizens, the
house is the largest component of their wealth. Conceptually, Reverse Mortgage seeks to
monetize the house as an asset and specifically the owner’s equity in the house. The scheme
involves the Senior Citizen borrower(s) mortgaging the house property to a lender, who then
makes periodic payments to the borrower(s) during the latter’s lifetime. The Senior Citizen
borrower is not required to service the loan during his lifetime and therefore does not make
monthly repayments of principal and interest to the lender. On the borrower’s death or on the
borrower leaving the house property permanently, the loan is repaid along with accumulated
interest, through sale of the house property. The borrower(s)/heir(s) can also repay or prepay
the loan with accumulated interest and have the mortgage released without resorting to sale of
the property.

Reverse Mortgage Loans (RMLs) are to be extended by Primary Lending Institutions (PLIs)
viz. Scheduled Banks and Housing Finance Companies (HFCs) registered with NHB or any
other class of institutions as may be notified by Government of India.

Qualifications for reverse mortgage eligibility:

Should be a Senior Citizen of India above 60 Years of age.

Married Couples will be eligible as joint borrowers provided one of them being
above 60 years of age and other not below 55 years of age.

Benefits of a reverse mortgage:

It aims at partially meeting the financial needs of senior citizens without selling the property
and enables recurring funds inflows to the senior citizens during their life time. After the
death of the senior citizen, the surviving spouse can continue to occupy the property till
his/her demise.
 CHAPTER:2

NHB REVERSE MORTGAGE SCHEME

FEATURES AND CALCULATOR

Reverse Mortgage Loan - Salient Features

Reverse Mortgage Loan (RML) enables a Senior Citizen i.e. above the age of 60 years to
avail of periodical payments from a lender against the mortgage of his/her house while
remaining the owner and occupying the house.
The Senior Citizen borrower is not required to service the loan during his/her lifetime
and therefore does not make monthly repayments of principal and interest to the lender.
RMLs are extended by Primary Lending Institutions (PLIs) viz. Scheduled Banks and
Housing Finance Companies (HFCs) registered with NHB.
The loan amount is dependent on the value of house property as assessed by the lender,
age of the borrower(s) and prevalent interest rate.
The loan can be provided through monthly/quarterly/half-yearly/annual disbursements or
a lump-sum or as a committed line of credit or as a combination of the three.
The maximum period of the loan is 20 years.
The loan amount may be used by the Senior Citizen borrower for varied purposes
including up-gradation/ renovation of residential property, medical exigencies, etc.
However, use of RML for speculative, trading and business purposes is not permissible.
Valuation of the residential property would be done at such frequency and intervals as
decided by the reverse mortgage lender, which in any case shall be at least once every
five years.

The borrower(s) will continue to use the residential property as his/her/their primary
residence till he/she/they is/are alive, or permanently move out of the property, or cease
to use the property as permanent primary residence.
The lender will have limited recourse i.e. only to the mortgaged property in respect of
the RML extended to the borrower.
All reverse mortgage loan products are expected to carry a clear and transparent ‘no
negative equity’ or ‘non-recourse’ guarantee. That is, the Borrower(s) will never owe
more than the net realizable value of their property, provided the terms and conditions of
the loan have been met.
On the borrower’s death or on the borrower leaving the house property permanently, the
loan is repaid along with accumulated interest, through sale of the house property.
The borrower(s)/heir(s) can also repay the loan with accumulated interest and have the
mortgage released without resorting to sale of the property.
The borrower(s) or his/her heirs also have the option of prepaying the loan at any time
during the loan tenor or later, without any prepayment levy.
 REVERSE MORTGAGE CALCULATOR
Reverse mortgage is a financial product that enables senior citizens (60+) who own a
house to mortgage their property with a lender and convert part of the home equity into
tax-free income without having to sell the house. Instead of you making monthly
payments to a lender, as with a regular loan, the lender makes payments to you. Multiple
options are available for repayment of the loan in lumpsum at the end of the loan term.
Use this calculator to find out how much payment you can expect to receive from the
lender when you opt for reverse mortgage.

Formula to calculate the results for reverse mortgage calculator is as given below:

Installment Amount = (PV*LTVR*I)/((1+I)n-1)

Where, PV=Property Value; LTVR=LTV Ratio; n=No. Of Installment Payments; I=The

value of 'I' will depend on Disbursement Frequency selected. For Example,
Property Value(PV) = 10,00,000
LTV Ratio(LTVR)=80%
Loan Disbursement Period=15 Years
Disbursement Frequency=Monthly
Interest Rate(IR) = 10.5 %

Calculations: On the basis of the inputs:

The disbursement frequency selected is Monthly so 'I' will be IR/12(i.e 10.5%/12)
No. of installment payments(n) will be calculated monthly e.g if 15 is selected then the
n=15*12=180
Putting the values in the formula:
Installment Amount=Rs.1850
 Chapter-3

NHB REVERSE MORTGAGE SCHEME

OPRATIONALGUIDELINES

Eligible Borrowers:

Should be Senior Citizen of India above 60 years of age.

Married couples will be eligible as joint borrowers for financial assistance. In such
a case, the age criteria for the couple would be at the discretion of the PLI, subject
to at least one of them being above 60 years of age and the other not below 55
years of age.
Should be the owner of a self- acquired, self occupied residential property (house
or flat) located in India, with clear title indicating the prospective borrower’s
ownership of the property.
The residential property should be free from any encumbrances.
The residual life of the property should be at least 20 years.
The prospective borrowers should use that residential property as permanent
primary residence. Permanent primary residence refers to the self acquired, self
occupied residential property where a person spends majority of his time. Factors
that may be relevant in this regard include the address used for general
correspondence, utility bills, bank statements, tax return, bank accounts and
banking relations etc. However, all facts and circumstances may be considered for
the purpose of determining that the residential property is the permanent primary
residence of the borrower.

Determination of Eligible Amount of Loan:

The amount of loan will depend on market value of residential property, as

assessed by the PLI, age of borrower(s), and prevalent interest rate.
The PLIs will have the discretion to determine the eligible quantum of loan
reckoning the ‘no negative equity guarantee’ being provided by the PLI. The
methodology adopted for determining the quantum of loan including the detailed
tables of calculations, the rate of interest and assumptions (if any), shall be clearly
disclosed to the borrower.
The PLIs would ensure that the equity of the borrower in the residential property
(Equity to Value Ratio - EVR) does not at any time during the tenor of the loan
fall below 10%.
The PLIs will need to re-value the property mortgaged to them at intervals that
may be fixed by the PLI depending upon the location of the property, its physical
state etc. Such revaluation may be done at least once every five years, the quantum
of loan may undergo revisions based on such re-valuation of property at the
discretion of the lender.
Nature of Payment:

Any or a combination of the following:

 Periodic payments (monthly, quarterly, half-yearly, annual) to be decided

mutually between the PLI and the borrower upfront
 Lump-sum payments in one or more tranches
 Committed Line of Credit, with an availability period agreed upon
mutually, to be drawn down by the borrower

The maximum monthly payments shall be capped at Rs.50,000/- or such other

amount as may be notified by the Government of India.
Lump-sum payments may be conditional and limited to medical exigencies.
The maximum lump-sum payment shall be restricted to 50% of the total eligible
amount of loan subject to a cap of Rs.15 lakh or such other amount as may be
notified by the Government of India, to be used for medical treatment for self,
spouse and dependants, if any. The balance loan amount would be eligible for
periodic payments.
The nature of payments will be decided in advance as part of the RML covenants.
PLI at their discretion may consider providing for options to the borrower to
change. All covenants/ conditions stipulated by the PLIs shall be disclosed to the
borrower in advance.

Eligible End use of funds

The loan amount can be used for the following purposes:

 Up gradation, renovation and extension of residential property.

 For uses associated with home improvement, maintenance/insurance of
residential property
 Medical, emergency expenditure for maintenance of family
 For supplementing pension/other income
 Meeting any other genuine need

Use of RML for speculative, trading and business purposes shall not be permitted

Period of Loan:

The maximum loan disbursement tenure should not exceed 20 years.

Interest Rate:

The interest rate (including the periodic rest) to be charged on the RML to be extended to the
borrower(s) may be fixed by PLI in the usual manner based on risk perception, the loan
pricing policy etc. and specified to the prospective borrowers. Fixed and floating rate of
interest may be offered by the PLIs subject to disclosure of the terms and conditions in a
transparent manner, upfront to the borrower.

Security:

The RML shall be secured by way of mortgage of residential property, in a

suitable form, in favour of PLI.
Commercial property will not be eligible for RML.

Valuation of Residential Property:

The residential property should comply with the local residential land-use and
building bye laws stipulated by local authorities, with duly approved lay-out and
building plans.
The PLI shall determine the Market Value of the residential property through their
external approved valuer(s). In-house professional valuers may also be used
subject to adequate disclosure of the methodology.
The valuation of the residential property is required to be done at such frequency
and intervals as decided by the PLI, which in any case shall be at least once every
five years. The methodology of the revaluation process and the
frequency/schedule of such revaluations shall be clearly specified to the borrowers
upfront.
PLIs are advised not to reckon expected future increase in property value in
determining the amount of RML.

Taxation:

All payments under RML are exempt from income tax under Section 10(43) of the Income-
tax Act, 1961.

Provision for Right to Rescission:

As a customer-friendly gesture and in keeping with international best practices, after the
documents have been executed and loan transaction finalized, Senior Citizen borrowers may
be given up to three business days to cancel the transaction, the “right of rescission”. If the
loan amount has been disbursed, the entire loan amount will need to be repaid by the Senior
Citizen borrower within this three day period. However, interest for the period may be
waived at the discretion of the PLI.
 CHAPTER:4

NHB REVERSE MORTGAGE SCHEME LOAN DISBURSEMENT,

SETTLEMENT OF LOAN,LOAN COVENANTS,FORECLOSURE

Loan Disbursement by Lender to Borrower:

The PLI will pay all loan proceeds directly to the borrower, except in cases
pertaining to, payments to contractor(s) for the repairs of borrower’s property, or
payment of property taxes or hazard insurance premiums from the borrower’s
account set aside for the purpose.
Periodicity: The loan will be extended as regular monthly, quarterly, half-yearly or
annual periodic cash advances or as a line of credit to be drawn down in time of
need or in lumpsum.
The PLI will have the discretion to decide the mode of payment of the loan
including fixation of loan tenor, depending on the state and market value of the
property, age of the borrower and other factors. The rationale behind the decision
of mode of payment and fixation of the loan tenor shall be clearly disclosed to the
borrowers.

Closing:

The PLIs will provide in writing, a fair and complete package of reverse mortgage
loan material and specimen documents, covering inter-alia, the benefits and
obligations of the product.
The closing costs would, inter-alia, include the customary and reasonable fees and
charges that may be collected by the PLIs from the borrower. The cost for any
item charged to the borrower shall not normally exceed the cost paid by the lender
or charged to the lender by the provider of such service(s). Such items may
include:

 Origination, Appraisal and Inspection Fees. The borrower may be charged

pro-rata origination, appraisal and inspection fees by the PLI /appraiser
 Verification Charges of external firms
 Title Examination Fees
 Legal Charges/ Fees
 Stamp Duty and Registration Charges
 Property Survey and Valuation charges

A detailed schedule of all such costs will clearly be specified and provided to the
prospective borrowers upfront by the PLIs.
Settlement of Loan

The loan shall become due and payable only when the last surviving borrower dies
or would like to sell the home, or permanently moves out of the home for aged
care to an institution or to relatives. Typically, a "permanent move" may generally
mean that neither the borrower nor any other co-borrower has lived in the house
continuously for one year or do not intend to live continuously. PLIs may obtain
such documentary evidence as may be deemed appropriate for the purpose.
Settlement of loan along with accumulated interest is to be met by the proceeds
received out of Sale of Residential Property.
The borrower(s) or his/her/their heirs/estate shall be provided with the first right to
settle the loan along with accumulated interest, without sale of property.
A reasonable amount of time, say up to 2 months may be provided when RML
repayment is triggered, for house to be sold.
The balance surplus (if any) remaining after settlement of the loan with accrued
interest, shall be passed on to the legal heirs/estate/beneficiaries of the borrower.
Any transfer of a capital asset in a transaction of reverse mortgage under a scheme
made and notified by the Central Government shall not be regarded as a transfer.
A borrower, under a reverse mortgage scheme, will be liable to income tax (in the
nature of tax on capital gains) only at the point of alienation of the mortgaged
property by the mortgagee for the purposes of recovering the loan.

Prepayment of Loan by Borrower(s)

The borrower(s) will have option to prepay the loan at any time during the loan
tenor.
There will not be any prepayment levy/penalty/charge for such prepayments.

Loan Covenants:

The borrower(s) will continue to use the residential property as his/her/their

primary residence till he/she/they is/are alive, or permanently move out of the
property, or cease to use the property as permanent primary residence.
Non-Recourse Guarantee: The PLIs shall ensure that all reverse mortgage loan
products carry a clear and transparent ‘no negative equity’ or ‘non-recourse’
guarantee. That is, the Borrower(s) will never owe more than the net realizable
value of their property, provided the terms and conditions of the loan have been
met.
Loan Agreement: The PLIs shall enter into a detailed loan agreement setting out
therein the salient features of the loan mortgage security and other terms and
conditions, including disbursement and repayment of the loan, in addition to the
usual provisions, which are ordinarily incorporated in a mortgage loan document.
The loan agreement may also include a provision that the borrower shall not make
any testamentary disposition of the property to be mortgaged and even if it does
so, it would be subject to the mortgage created in favour of the lending institution.
In such a case, the borrower shall make a testamentary disposition of the
mortgaged property in favour of any of his/her relatives, subject to the discharge
of the mortgage debt by such legatee and a statement that the heirs shall not be
entitled to challenge the validity of the mortgage as also the right of the mortgagee
to enforce the mortgage in the event of death of the borrower unless the legal
representative is willing to undertake the responsibility for discharging in full the
amount of loan and accrued interest thereof.
In addition, the PLI may also consider, at its discretion, obtaining a Registered
Will from the borrower stating, inter-alia, that he/she has availed of RML from the
PLI on security by way of mortgage of the residential property in favour of the
PLI, meaning thereby that in the event of death of the borrower (and co-borrower,
if any), the mortgagee is entitled to enforce the mortgage and recover the loan
from the sale proceeds on enforcement of security of the mortgage. The surplus, if
any, has to be returned to the heirs of the deceased borrower(s).
The PLIs may consider,at its discretion,taking an undertaking from the prospective
borrower that the “Registered Will” given to the PLI is the last “Will”, prepared
by him/her at the time of availment of RML facility as per which the property will
vest in his/her spouse/beneficiary name after his/her demise. The borrower will
also undertake not to make any other ‘Will’ during the currency of the loan which
shall have any adverse impact on the rights created by the borrower in the PLIs
favour by way of creation of mortgage on the immovable property mentioned
under the loan documentation for covering loan to be allowed to his/her spouse
and interest thereon, even after the borrower’s death.
The PLI will ensure that the borrower(s) has insured the property against fire,
earthquake, and other calamities.
The PLI will ensure that borrower(s) pay all taxes, electricity charges, water
charges and statutory payments.
The PLIs will ensure that borrower(s) are maintaining the residential property in
good and saleable condition.
The PLI may reserve the option to pay for insurance premium, taxes or repairs by
reducing the homeowner loan advances and using the difference to meet the
obligations/expenditures.
The PLI reserves the right to inspect the residential property/premises or arrange
to have the residential property/premises inspected by its representatives any time
before the loan is repaid and borrower(s) shall render his/her/their cooperation in
respect of such inspections.
Foreclosure:

The loan shall be liable for foreclosure due to occurrence of the following events
of default.

 If the borrower has not stayed in the property for a continuous period of
one year
 If the borrower(s) fail(s) to pay property taxes or maintain and repair the
residential property or fail(s) to keep the home insured, the PLI reserves
the right to insist on repayment of loan by bringing the residential property
to sale and utilizing the sale proceeds to meet the outstanding balance of
principal and interest.
 If borrower(s) declare himself/herself/themselves bankrupt.
 If the residential property so mortgaged to the PLI is donated or abandoned
by the borrower(s).
 If the borrower(s) effect changes in the residential property that affect the
security of the loan for the lender. For example: renting out part or all of
the house; adding a new owner to the house's title; changing the house's
zoning classification; or creating further encumbrance on the property
either by way taking out new debt against the residential property or
alienating the interest by way of a gift or will.
 Due to perpetration of fraud or misrepresentation by the borrower(s).
 If the government under statutory provisions, seeks to acquiring the
residential property for public use.
 If the government condemns the residential property (for example, for
health or safety reasons).

Option for PLI to Adjust Payments:

The PLI shall have the option to revise the periodic/lump-sum amount at such
frequency or intervals based on revaluation of property, which in any case shall be
at least once every five years.
Borrower shall be provided with an option to accept such revised terms and
conditions for furtherance of the loan.
If the Borrower does not accept the revised terms, no further payments will be
effected by the Lender. Interest at the rate agreed before the review will continue
to accrue on the outstanding amount of the loan. The accumulated principal and
interest shall become due and payable as mentioned in clauses (14) and (18).
 CHAPTER:5

NHB REVERSE MORTGAGE SCHEME

COUNSELING AND INFORMATION TO BORROWERS

Counseling and Information to Borrowers:

The PLIs will observe and maintain high standards of conduct in dealing with the
Senior Citizens and their families and treat them with special care.
The PLIs shall clearly and accurately disclose the terms of the RML without any
ambiguity.
The PLIs should clearly explain to the prospective borrowers the terms and
conditions of RML, the methodology followed for valuation of the residential
property, the method of determination of eligible quantum of loan, the frequency
of re-valuation and review of terms and all related aspects of the RML.
The PLIs may suggest to the Senior Citizens to nominate their ‘personal
representatives’ usually a close relative who the PLI can contact in the event of
any potentialities.
The PLIs may counsel the prospective borrowers about the possible impacts to the
borrowers due to adverse movements in interest rates and property price
fluctuations.
The PLIs shall clearly specify all the costs to the Borrower(s) that are associated
with the transaction.
The PLIs shall in no way assert or imply to the borrower(s) that the borrower(s)
is/are obligated to purchase any other product or service offered by the PLI or any
other associated institution in order to obtain a reverse mortgage loan.
Take reasonable steps to check out the background and procedures of third parties
before accepting referrals of business from them, and refuse to accept referrals
from those that are found unacceptable. Members shall disclose to clients any third
party with a financial interest in the reverse mortgage transaction.
Overall, the PLIs shall treat the Senior Citizen borrower fairly.
NHB RML COUNSELLING CENTER
PUNE KOLKATA

Contact Address Contact Address

HelpAge India Counsellor- Helpage India
4/27, Phule Nagar 162-B,AJC Bose Road
Near Alandi Road 4th floor, Bhupesh Bhawan
RTO Ground Kolkata
Pune – 411006 Tel. No.: 09903516133
Tel.No. - 020-20265513
LUCKNOW BHOPAL

Contact Address Contact Address

Counsellor HelpAge India
C/o Helpage India A-98, Mansarovar Colony, Shahpura ,
3/129, Vikas Nagar Bhopal (MP)
Luknow-226022 Ph no- 0755-4078567,4296568
AHMEDABAD MUMBAI
Contact Address
Counsellor Contact Address
C/o National Housing Bank Counsellor
Mezzanine Floor, G-7 Sakar-1 C/o National Housing Bank
Opp. Gandhigram Railway Station Mumbai Life Building
Ashram Road 45, Veer Nariman Road Fort,
Ahmedabad-380009 Mumbai-400023
Tel. No:. 079/26582523 Tel. No:. 022/22851560-63
CHENNAI BENGALURU

Contact Address Contact Address

Counsellor – Helpage India
MTB, Building (North wing)
Ground floor, 485
Annasalai,Nandanam
Chennai- 600035
Telephone No: 044/24320761
HYDERABAD
Counsellor – Elders Helpline
Nightingale Medical Trust
Office of Additional Commissioner(Traffic)
2nd floor,BMTC Complex
Shivaji Nagar
Bengaluru-560001
Tel. No:. 080-22943226
NEW DELHI

Contact Address Contact Address

Counsellor- RML Centre Counsellor- Helpage India
2-2-3 /A / A5, Prema Sai Apts C-14 Qutab Institutional Area,
Besides Ati Shivam Road New Delhi.
DD Colony
Hyderabad – 500007
Andhra Pradesh
Tel. No.: 040-27427066/27428472
 CHAPTER:6
Introduction to NPS (National Pension Scheme)
The National Pension Scheme is a social security initiative by the Central Government. This
pension program is open to employees from the public, private and even the unorganized
sectors with the exception of those from the armed forces. The scheme encourages people to
invest in a pension account at regular intervals during the course of their employment. After
retirement, the subscribers can take out a certain percentage of the corpus. As an NPS
account holder, you will receive the remaining amount as a monthly pension post your
retirement.
Earlier, the NPS scheme covered only the Central Government employees. Now, however,
the PFRDA has made it open to all Indian citizens on a voluntary basis. NPS scheme holds
immense value for anyone who works in the private sector and requires a regular pension
after retirement. The scheme is portable across jobs and locations, with tax benefits under
Section 80C and Section 80CCD.
Regulatory Framework
In 1999 the Government of India commissioned a national project, OASIS (an acronym for
"old age social and income security"), to examine policies related to old age income security
in India. Based on the recommendations of the OASIS report, the Government of India
introduced a new Defined Contribution Pension System for the new entrants to Central/State
Government service, except to the Defence forces i.e. Army, Navy and Air Force, replacing
the existing system of the Defined Benefit Pension System.
On 23 August 2003, the Interim Pension Fund Regulatory & Development Authority
(PFRDA) was established through a resolution by the Government of India to "promote old
age income security by establishing, developing and regulating pension funds, to protect the
interests of subscribers to schemes of pension funds and for matters connected therewith or
incidental thereto." The Pension Fund Regulatory & Development Authority Act was passed
on 19 September 2013 and notified on 1 February 2014, thus setting up PFRDA as the
regulator for pension sector in India. However, there remains a considerable amount of
confusion with other entities like the Employee Provident Fund, pension funds run by life
insurers, and mutual fund companies being outside the purview of PFRDA.
The contributory pension system was notified by the Government of India on 22 December
2003, now named the National Pension System (NPS) with effect from 1 January 2004. The
NPS was subsequently extended to all citizens of the country with effect from 1 May 2009,
including self-employed professionals and others in the unorganized sector on a voluntary
basis.
Who should invest in the NPS?
The NPS is a good scheme for anyone who wants to plan for their retirement early on and has
a low-risk appetite. A regular pension (income) in your retirement years will no doubt be a
boon, especially for those individuals who retire from private sector jobs. A systematic
investment like this can make a massive difference to your life post-retirement. In fact,
salaried people who want to make the most of the 80C deductions can also consider this
scheme.
Fetures & Benefits of NPS
a. Returns/Interest
A portion of the NPS goes to equities (this may not offer guaranteed returns). However, it
offers returns that are much higher than other traditional tax-saving investments like the PPF.
This scheme has been in effect for over a decade, and so far has delivered 8% to 10%
annualized returns. In NPS you are also allowed the option to change your fund manager if
you are not happy with the performance of the fund.

b. Risk Assessment
Currently, there exists a cap in the range of 75% to 50% on equity exposure for the National
Pension Scheme. For government employees, this cap is 50%. In the range prescribed, the
equity portion will reduce by 2.5% each year beginning from the year in which the investor
turns 50 years of age. However, for an investor of the age 60 years and above, the cap is fixed
at 50%. This stabilizes the risk-return equation in the interest of investors, which means the
corpus is somewhat safe from the equity market volatility. The earning potential of NPS is
higher as compared to other fixed income schemes.

c. Tax efficiency – NPS tax benefit

There is a deduction of up to Rs. 1.5 lakhs to be claimed for NPS – for your contribution as
well as for the contribution of the employer.
– 80CCD(1) covers the self-contribution, which is a part of Section 80C. The maximum
deduction one can claim under 80CCD(1) is 10% of the salary, but no more than the said
limit. For the self-employed taxpayer, this limit is 20% of the gross income.
– 80CCD(2) covers the employer’s NPS contribution, which will not form a part of Section
80C. This benefit is not available for self-employed taxpayers. The maximum amount eligible
for deduction will be lowest of the below: a. Actual NPS contribution by employer b. 10% of
Basic + DA c. Gross total income
– You can claim any additional self contribution (up to Rs 50,000) under section 80CCD(1B)
as NPS tax benefit.
The scheme, therefore, allows a tax deduction of up to Rs 2 lakh in total.

d. Withdrawal Rules After 60

Contrary to common belief, you cannot withdraw the entire corpus of the NPS scheme after
your retirement. You are compulsorily required to keep aside at least 40% of the corpus to
receive a regular pension from a PFRDA-registered insurance firm. The remaining 60% is
tax-free now. Read here to know about the latest news on NPS. Read here to know about the
latest news on NPS .

e. Early Withdrawal and Exit rules

As a pension scheme, it is important for you to continue investing until the age of 60.
However, if you have been investing for at least 3 years, you may withdraw up to 25% for
certain purposes. These include children’s wedding or higher studies, building/buying a
house or medical treatment of self/family, among others. You can make a withdrawal for up
to 3 times (with a gap of 5 years) in the entire tenure. These restrictions are only imposed on
tier I accounts and not on tier II accounts. Scroll down for more details on them.

f. Equity Allocation Rules

The NPS invests in different schemes, and the Scheme E of the NPS invests in equity. You
can allocate a maximum of 50% of your investment to equities. There are two options to
invest in – auto choice or active choice. The auto choice decides the risk profile of your
investments as per your age. For instance, the older you are, the more stable and less risky
your investments. The active choice allows you to decide the scheme and to split your
investments.

g. Option to change the Scheme or Fund Manager

With NPS, you have the provision to change the pension scheme or the fund manager if you
are not happy with their performance. This option is available for both tier I and tier II
accounts.
 CHAPTER:7

Registration Process for NPS

PFRDA regulates the operations of the NPS, and they offer both an online as well as an
offline means to open this account.

 Offline Process
To open an NPS account offline or manually, you will have to find a PoP-Point of Presence,
(it could be a bank too) first.-S

 Procure your Permanent Retirement Account Number (PRAN) application form

"As a Subscriber between the age brackets of 18 to 65 years of age, you can procure
your PRAN application form from any of the Point of Presence - Service Providers
(POP-SP) you wish to register with. You can also procure the PRAN application form
from our website by clicking here."
"You have to ensure that your PRAN application form is filled up i.e. photograph,
signature, mandatory details, scheme preference details etc and also submit KYC
documentation with respect to proof of identity and proof of address. For detailed
information on NPS, please refer to the offer document prescribed by the Pension
Fund Regulatory and Development Authority (PFRDA)."
 Submit PRAN application form to your nearest Point Of Presence - Service
Provider(POP-SP)
You can go to your nearest POP-SP and submit the PRAN application along with the
KYC documents. PRAN card will be sent to your correspondence address by CRA.
 Track your PRAN application
At the time of submission of the PRAN application, POP-SP shall give you a receipt
number. You can track the status of your PRAN application by entering the receipt
number in the following link: https://cra-nsdl.com/CRA/pranCardStatusInput.do
 Submit your first Contribution Slip
you are required to make your first contribution (minimum of Rs 500) at the time of
applying for registration to any POP-SP. For this, you will have to submit NCIS
(Instruction Slip) mentioning the details of the payment made towards your PRAN
account.

 Online Process
It is now possible to open an NPS account in less than half an hour. Opening an account
online (enps.nsdl.com) is easy, if you link your account to your PAN, Aadhaar and/or mobile
number. You can validate the registration using the OTP sent to your mobile. This will
generate a PRAN (Permanent Retirement Account Number), which you can use for NPS
login.
Registration using PAN (KYC verification by Bank/Non Bank POP)
1. You must have a 'Permanent Account Number' (PAN)

2. Bank / Demat /Folio account details with the empanelled Bank/Non-Bank for KYC
verification for subscriber registration through eNPS .
3.
4. Your KYC verification will be done by the Bank/Non-Bank POP selected by you
during the registration process. Name and address provided during registration should
match with POP records for KYC verification. If the details don't match, the request is
liable for rejection. In case of rejection of KYC by the selected POP, the applicant is
requested to contact the POP

5. You need to fill up all the mandatory details online

6. You need to upload scanned copy of PAN card and Cancelled Cheque in
*.jpeg/*.jpg/*.png format having file size between 4KB - 2MB

7. You need to upload your scanned photograph and signature in *.jpeg/*.jpg/*.png

format having file size between 4KB - 5MB

8. You will be routed to a payment gateway for making the payment towards your NPS
account from Internet Banking

9. Contributions are credited in PRANs on T+2 basis (subject to receipt of clear funds
from Payment Gateway Service Provider)

In addition, NRI subscribers should,

1. Select the Bank Account Status i.e., Non-Repatriable account or Repatriable account

2. Provide the NRE/NRO bank account details and upload scanned copy of passport

3. Select the preferred address for communication i.e., Overseas Address or Permanent
Address (communication at overseas address would entail extra charges)

After Permanent Retirement Account Number (PRAN) is allotted, subscriber can use the
following option:

Option 1 - eSign

1. Select 'eSign' option in the eSign / Print & Courier page

2. OTP for the purpose of authentication will be sent to your mobile number registered
with the Aadhaar

3. After Authentication of Aadhaar, Registration form will be successfully eSigned

4. Once a document is eSigned, you need not send the physical copy of form to CRA
 5. eSign service charges plus taxes applicable is Rs. 25.90 (including UIDAI charge of
Rs. 20)

Option 2 - Print and Courier

1. Select 'Print & Courier' option in the eSign / Print & Courier page

2. You need to take a printout of the form, paste your photograph (please do not sign across
the photograph) & affix signature

3. You should sign on the block provided for signature

4. The photograph should not be stapled or clipped to the form

5. The form should be sent within 30 days from the date of allotment of PRAN to CRA at
the following address or else the PRAN will be 'frozen' temporarily,
Central Recordkeeping Agency (eNPS)
NSDL e-Governance Infrastructure Limited,
1st Floor, Times Tower, Kamala Mills Compound, Senapati Bapat Marg
Lower Parel, Mumbai - 400 013
For queries please contact: 022 - 4090 4242 or write to: eNPS@nsdl.co.in
 CHAPTER:8

TYPES AND INVESTMENT OPTIONS IN

NATIONAL PENSION SCHEME

Types of NPS Account

 Tier I Account: This account carries a tax deduction under Section 80C up to Rs 1.5
lakh per annum and an additional amount up to Rs 50,000 per annum under Section
80CCD (1B).
 This is non-withdrawable permanent retirement account. On maturity i.e at the age of
60, 60% of the corpus which is tax-free can be withdrawn. Another 40% must
mandatorily be used to buy an annuity. The balance 20% can either be used to buy an
annuity or can be withdrawn after paying tax .However, as per the announcements
made in the Union Budget 2019, the NPS corpus that can be withdrawn at the time of
retirement i.e. 60% of the total accumulated corpus would be tax exempt from FY
2020-21. The move makes NPS at par with other saving schemes such as PPF and
EPF in terms of tax treatment.

 Tier II Account: This is a voluntary retirement-cum-savings account that can be

opened only if you have a Tier I account. Subscribers are free to invest or withdraw
their funds anytime according to their convenience. This account has no tax
deductions, for private sector employees or self-employed persons.
 While presenting Union Budget 2019, the finance minister Nirmala Sitharaman
announced that from FY 2020-21, tax benefits can be claimed on Tier II accounts
contributions but with lock-in period, thus making it at par with Equity Linked Saving
Schemes (ELSS).

Particulars NPS Tier-I Account NPS Tier-II Account

Status Default Voluntary
Withdrawals Not permitted Permitted
Tax exemption Up to Rs 2 lakh p.a.(Under 1.5 lakh for government
80C and 80CCD) employees
Other employees-None
Minimum NPS contribution Rs 500 or Rs 500 or Rs Rs 250
1,000 p.a.
Maximum NPS Contribution No limit No limit
Investment options under National Pension Scheme
Under NPS in private sector, how the money is invested will depend upon subscriber’s own
choice. NPS offers a number of funds and multiple investment options to choose from. In
case subscriber does not want to exercise a choice, his/her money will be invested as per the
Default choice of “Moderate Life Cycle Fund” under "Auto Choice" option, where money
will get invested in various type of schemes as per subscriber’s age. The NPS offers two
approaches to invest subscriber’s money:
Active choice - Individual Funds (Asset Class E, Asset Class C, and Asset Class G and
Asset Class “A”)

Subscriber will have the option to actively decide as to how his/her NPS pension wealth is to
be invested in the following three options:

 Asset Class E - Investments in predominantly equity market instruments.


Asset Class C - Investments in fixed income instruments other than Government
securities.

Asset Class G - Investments in Government securities.

 Asset class A- Investment in Alternative Investment Schemes including instrument like

CMBS, MBS, REITS, AIFs, INVITS, etc.

Subscriber can select multiple Asset Class under a single PFM as mentioned below:

 Up to 50 years of age, the maximum permitted Equity Investment is 75% of the total
asset allocation.
 From 51 years and above, maximum permitted Equity Investment will be as per the
equity allocation matrix provided below. The tapering off of equity allocation will be
carried out as per the matrix on date of birth of Subscriber.
 Percentage contribution value cannot exceed 5% for Alternative Investment Funds.
 The total allocation across E, C, G and A asset classes must be equal to 100%.
Allocation pattern in Active Choice - NPS

Class E: Equity, Class C: Corporate Debt, Class G: Government Securities, Class A:

Alternate Investments

Auto choice - Lifecycle Fund

NPS offers an easy option for those participants who do not have the required knowledge to
manage their NPS investments. In case subscribers are unable/unwilling to exercise any
choice as regards asset allocation, their funds will be invested in accordance with the Auto
Choice option.
In this option, the investments will be made in a life-cycle fund. Here, the proportion of funds
invested across three asset classes will be determined by a pre-defined portfolio (which
would change as per age of subscriber), with the investment in E decreasing and in C & G
increasing with the age of the subscriber.

Three Life Cycle funds are available under this Auto Choice as under:

(i) LC75 – Aggressive Life Cycle Fund: In this Life Cycle Fund, the exposure in Equity
Investments starts with 75% till age 35 and gradually reduces as per the age of the subscriber.

(ii) LC50- Moderate Life Cycle Fund: In this Life Cycle Fund, the exposure in Equity
Investments starts with 50% till age 35 and gradually reduces as per the age of the subscriber.

(iii) LC 25- Conservative life cycle fund: In this Life Cycle Fund, the exposure in Equity
Investments starts with 25% till age 35 and gradually reduces as per the age of the subscriber.

The default auto choice if the subscriber is not choosing any of the above option is Moderate
life Cycle Fund.
 CHAPTER:9

CONCLUSION AND SUGGESTIONS

Reverse mortgage though the concept is not even a decade old, is not getting the requisite
popularity in India .In total ,five factor that affect the attitude of potential buyer towards
reverser mortgage have been identified that is financial Independence ,revenue return ,risk
involvement, Complex structure and ownership. While the banks should promote this product
by emphasising on the factors light financial Independence, revenue return and ability to
maintain the ownership they should work upon the factors like Complex structure and risk
involvement .The advertisement and awareness campaign should focus on These areas for
increasing the popularity of the product.

1. Reverse mortgage, if available, offers an attractive option to the elderly to finance their
consumption needs on their own, without the necessity of moving out or worrying about
indebtedness or repayment.
2. RM, if widely available, might in fact encourage more people in the working population to
increase the proportion of their savings invested in housing.
3. This segment is likely to attract increasingly favorable public policy attention, given the
projected importance of this segment in the electoral politics of all democratic countries.
4. However, the actual size of the RM markets is nowhere near its estimated potential, for a
variety of reasons from the demand, supply and regulatory considerations.

Following steps may be taken to make the facility of reverse mortgage workable:
End use of loan should be monitored. An explicit clause preventing use of loan to support
wards’ personal requirements or businesses to be introduced. Interest paid on reverse
mortgage should be explicitly allowed under ‘income from house property’ to give tax
advantage to the borrower. Insurance of credit default such as in the US should be made
mandatory. A small part of the loan amount may be parked in unit linked insurance schemes
so that the premia paid will keep appreciating and at the same time in the eventuality of
death, the sum assured will likely make any good deficit. Instead of merely capping loan
amount as a percentage of value, total outstanding including interest should be capped if the
borrowers survive the term of loan. The borrower must undertake to pay the difference from
his other sources. A pool account may be operated by NHB or any agency promoted for this
purpose which will meet short recoveries either due to outstanding overtaking the value of
property or, due to value of property falling. Counselling to be mandatory could be free as in
the US and should be done by advisors carrying NHB certificates.