Frequently Asked Questions

1. Why should we opt for NPS (from corporate perspective)

 NPS is the government scheme which is offered at no cost to the company.

 Company does not owe any financial liability throughout.
 Helps in getting the corporate tax rebate under section 36 of Income Tax Act as the
contribution made by employees is considered as the business expense in the balance
sheet.
 Facilitate the employees to avail additional tax exemption and to plan effective and efficient
retirement solution. This really enhances employee satisfaction with their employer.
 Dedicated Relationship Management team for the corporate to onboard and to effectively
run this government scheme.
 Conducting employee awareness sessions and help desks to provide one stop solution.
 Minimal documentation required to onboard.
 The whole show is run and managed effectively by us and the corporate has no other
engagement in the process other than transferring employee contribution and sharing the
MIS report every month for the same. MIS report carries easy format which includes
employee name , contribution amount and contribution month along with arrears, if any.
 Each MIS shared is vet at our end at two levels for smooth transaction of contribution.
 Digitally advanced user-friendly online portal access is also provided to the corporate to
authorize employees PRAN subscription and view the details of contributions made.
 Employees who are on new tax regime can have only NPS as the savior for their tax
exemption as no other exemption is allowed.

2. Why should employee opt for NPS (from employee perspective)

 To avail tax exemption under three different sections: 80CCD2, 80CCD1b & 80C
 To help plan and manage the post retirement solution.
 Maturity amount is absolutely tax free under section (10)10D as NPS is rated as EEE.
 Employees who are on new tax regime can have only NPS as the savior for their tax
exemption as no other exemption is allowed.
 Lowest charge structure both in terms of subscription and contribution in comparison to
other investment vehicle which helps in increasing the portion of invested amount.
 This is the only government scheme of its own kind which facilitate subscriber to invest in
the money market instrument along with maximum tax exemptions as mentioned in point 1
& point 3.
 Subscriber can manage and view each detail through mobile based app.
 Subscriber has the option to choose the investment allocation across different asset classes
as per one’s risk appetite and objective.
 Subscriber with little knowledge in investment in money market instrument have the option
to choose the Auto mode facility and to choose the investment objective out of three
 categories which are: Aggressive, Moderate and Conservative. Thereafter, fund manager
allocates the investment accordingly.
 Investment allocation can be changed easily using mobile based app.

3. Why to choose NPS over other market linked instrument which gives higher return.

 Quote by Warren buffet – Never put all your eggs in one basket. The only investment
vehicle which provides hell lot of diversifications to the portfolio across asset classes
(Equity, Government Securities, Corporate Bonds & Alternate Investment) is NPS.
 Investment in NPS facilitates average rupee cost to the investment due to the wide range
of diversification within each asset class which is as follows:

Equity Corporate Bonds

Equity Share Credit Risk bearing Fixed Income Instruments
Equity Mutual Fund Term deposits of scheduled commercial banks
ETFs / Index Funds Debt Mutual Funds
Exchange Traded Derivatives Debt securities of REIT’s & InvIT’s
Short Term Investments Overnight/Liquid Investments
Initial Public Offer

Government Bonds Alternate Investment

Government Securities Mortgage-backed securities
Securities guaranteed by Central or State Government Real Estate Investments Trusts
Mutual Funds dedicated for Government Securities Asset Backed Securities
Liquid Investment/Short Term Investments Infrastructure Investments Trusts
SEBI Regulated AIF (Category I and Basel III Tier I bonds

 Funds invested in money market instrument through NPS gives the maximum tax
exemption for an amount up to Rs 2 Lakh (1.5L +50k) +10% of (basic salary +DA) which
should not exceed 7.5 Lakh of annual retirals ( Employer PF Contribution +
Superannuation). Each penny saved in taxes every year can again be invested again to
build large corpus post retirement.
 NPS has the lowest expense ratio across any investment vehicle dealing in money
market instrument. For comparison:
1. Mutual Fund – 1 to 2%
2. ULIP – up to 1.5% to 3% or more
3. Insurance – up 4% or more
4. Portfolio Management Scheme – up to 2%

Each penny saved due to less cost is used to increase the invested amount. Higher the
investment amount means higher corpus at the time of maturity.
 Example: Investment of Rs 2,50,000 for 20 years in two investment products with the
same CAGR return of 10% but with the expense ratio of 1% would lead to the
difference of 26 in the maturity amount

 Tax Free returns

4. Why to choose money market instrument over long term guaranteed or traditional
plan
 Inflation cannot get offbeat the returns from investment in long term guaranteed
plans and the reason for the same is that they are guaranteed.
 Looking up to the inflation rate, investment in money market instrument becomes
inevitable in today’s era as the returns are directly linked to the market performance and
the portion of invested amount constitutes the amount exempted from tax. Historically
long-term investment in money market instrument has given return in double digits
which easily offbeats the impact of invisible tax which is inflation.
 Most of the guaranteed/ traditional plans will not even have the tax exemption
facility for the premium above Rs 5 Lakh from April 2023
 In 21st century, money market instruments are deemed to be the right choice as
rightly said by Benjamin Graham : there is an uncertainty of everything in the
world, but one thing is certain that the coming generation will always consume
more. More consumption leads to increase in the size of market which ultimately
helps the investors to increase their profit with time.
 If investment in money market instrument is subject to market risk then
investment in guaranteed / traditional plans falls in the category of ignoring the
risk of potential certainty that the market may not be good at all.
 Managing the risk by choosing right investment product like NPS would give far
better return than ignoring the potential return of the risk which is enormous.
This fact is inevitable if we see the historical data.
 As said by Peter Lynch: Investor should never mix investment with insurance. As
investment is meant for returns and insurance is meant for protection in an
unforeseen event.

5. How investment in money market instrument justifies its objective of giving risk or loss
adjusted return

Every investment vehicle is driven by its objective. Success or failure depends if the investment
vehicle attains the objective or not. Objective of NPS is to provide loss or risk adjusted return.
Hence, in order to meet its own objective, each asset classes in NPS have the USP of its own to
meet its objective as follows:
  Equity - The objective is to maximize the risk adjusted return by investing in equities
through various modes mentioned in above table as per the prescribed allocation across all
modes.
 Corporate Bond - To actively manage the fund by building a portfolio of credit risk bearing
fixed income instruments. The quality & duration of the assets purchased would aim to
optimize the credit risk & liquidity risk of the portfolio. Fund will maintain reasonable level
of liquidity.
 Government Bonds - To invest in Government Securities (Includes all Central Govt securities
and State Development Loans), maintaining a medium to long term duration of the portfolio
to achieve capital conservation.
 Alternate Investment – Minimum corpus an investor needs to invest in AIFs is 1 Crore with
an expense ratio of around 2%. Hence, NPS is the only investment vehicle which facilitates
investment in AIFs with the capping of 5% of the contribution amount and contribution
charge as low as 0.5%

6. Why should I opt for NPS when there is no liquidity?

 Comparing liquidity and illiquidity investment tools is like comparing apple and oranges. And
the reason to state that it does not matter which tool is better, rather the objective of
investor should be met. Since both the tools have their own attributes hence balancing
between them is the utmost important thing to have a portfolio as such.
 Liquid investments are less volatile and have less return too, however on the other hand
illiquidity are more volatile and have high returns too.
 Having the balanced portfolio of liquid / illiquid investment vehicle in inevitable to achieve:
Higher returns, tax exemption and at the same time having some liquid assets to meet
shortcomings to use any opportunity coming before at any point of time.
 Suppose you invest in the ETFs and as per the data, the average trading volumes of 37 ETFs
out of 64 ETFs over National Stok Exchange has been below 5000 per day. Hence, if you
have large quantity of ETFs, you may find it troublesome to monetize it. Hence, liquidity in
this will come at a cost.
 Same is the case with sovereign gold bonds. Many often quote at 10% or 15% discount to
their fair value. If one can hold to them till maturity, then they can be very good means to
invest in gold. Hence, liquidity again in this will come at a cost.
 However, NPS does provide three times partial withdrawal option to the subscriber to
achieve their varied goals.

7. I am interested in lump sum and not the annuities.

I do understand that you wish to take the lumpsum home and want to invest the portion of
annuity as per your choice. But please understand the investment vehicle does good only when
the objectives are met. And the utmost objective of NPS as an investment vehicle is to provide
risk & loss adjusted corpus post retirement till the subscriber survives. Hence, government has
 framed the structure likewise to provide the option of lumpsum and annuities which is in the
ratio of 60:40 to the least for that matter largely because of following factors:

 Risk Appetite decreases with age hence the investment option should be chosen as per the
risk appetite post retirement. Annuity works best for the people above the age of 60 Yrs
 By the time subscriber attains the maturity age, most of the priorities of daily life already
predetermined.
 Annuities comes with varied option of Joint life with return of purchase price and Joint Life
with Return of Balanced Purchase price. This facilitates and completely protects the
subscriber and the family in any unforeseen event.
 Annuities are reliable, predictable stream of income for the rest of life, reducing concerns
one might have about outlived income requirement.

Feature NPS FD
Option to choose
Until retirement: can exit tenor between 7
Tenor only after 5 years days to 10 years
Up to 6.5%; can
Depends on the go up to 7.35%
performance of for senior citizen
Interest Rate underlying assets deposits
Well-regulated and The investment
returns depend on the return is
Safety investment and market guaranteed
Depends on
Returns Market Linked Interest rate
No Tax benefit for
Up to 2 Lakhs + 10% of deposits other
Tax Benefit (basic salary + DA) ` than lock in FDs
Available but
Premature Yes, for certain purposes comes with
Withdrawal but only after 3 years penalty
Indian Citizens between
the age of 18-65 years,
except for those
belonging to armed
Eligibility forces All Indian Citizens

Feature NPS PPF

 Any Indian resident. One
NPS account can can also open a PPF
be opened by account in the name of
Indian citizens his or her minor children
b/w 18 - 70 years and can avail tax
Who can Invest of age benefits
Are NRIs
eligible Yes No
Around 12 to
Interest Rates 14% 7 to 8 %
The maturity
tenure is not
fixed. You can
contribute to 15 Years and can be
NPS till the age of extended after 15 years
60 with an option with a block of 5 years
to defer till the without making further
Maturity age of 70 years contributions

Minimum Rs 500
Minimum annually with the
contribution maximum amount
required is Rs capped to Rs 1.5 Lkah. A
Investment 6000. No maxium maximum contributions
Limit limit per year is allowed
Section 80C ;
Section 80ccd1B;
Tax benefits 80ccd2 Section 80C
Premature / 3 partial
partial withdrawal after Partial withdrawal after
withdrawal 3 years allowed 7 years
Yes - Across
Choice of varied permitted
Investment asset classes No
Interest rate decided by
Returns Market Linked gov
Annuity Option Yes No

Features NPS ULIP

Low (as low as
Cost 0.5%) upto 1.35%

Higher than
Minimum Low (as low as NPS as this is
Contribution 6000) an insurance
 product.
Ranges
between Rs
18000 to Rs
24000
Investment
Type Market Linked Market Linked
Lock in period 5 Yrs 5 Yrs
3 Times after 3
years of
subscription
Partial (25% of
withdrawal contribution) None
Tax exemption 60% of the
on maturity corpus is tax 33.33% is tax
amount free free
Rs 600
Can be easily discontinuation
closed with fees with
discontinuation tedious closure
Discontinuation fees of Rs 100 process

Features NPS SIP

Generally,
Returns on an between 10% to Between 12% to
average 13% 15%

no lock in , only
elss has lock in of
Lock in period 5 Years 3 years

Risk related to
equity exposure Subject to
Risk Factor only market risk
Investment
amount
(Minimum ) Rs 6000 Rs 500
 Investment
Amount
Maximum No Limit No Limit
Up to 75% Can be from 0%
Equity Exposure maximum to 100%
Investment Up till investor's
Duration Till Retirement will
No restrictions in
general. ELSS
Pre Mature funds have a lock
Withdrawal After 5 years in of 3 year
Only ELSS funds
are eigible for
tax exemption Rs
1.5Lakh under 80C + 80CCD1B +
tax Benefits section 80C 80CCD2

Comparison in the tax Implication on NPS vs Mutual funds:

Mutual Funds:

Long Term Capital Short Term Capital Gain

Particulars gain Tax tax
10% on the amount
Equity Funds exceeding Rs 1 Lakh 15%

Taxed as per the

Debt Funds 20% applicable slab rate
10% on the amount
ELSS Funds exceeding Rs 1 Lakh 15%
Equit Oriented As per equity fund As per equity fund
Hybrid funds taxation taxation
Debt Oriented As per Debt fund As per Debt fund
Balanced Funds taxation taxation

NPS on the other hand is a tax free to the extent of 60% of the corpus amount. The rest 40% which is to
be reinvested in an annuity is taxable as per the applicable tax slab of the individual.