NPS ( New Pension Scheme ) is applicable from 2004 for Government Employees and majority of the State Governments have implemented the same. However our Leaders dragged it till 2010, and from then on it is applicable for all Public Sector Bank Employees recruited after 2010.
Now let’s see what NPS is all about to start with there are 7 fund managers to manage our NPS funds.
- HDFC Pension Management Company Ltd.
- ICICI Pension Fund Management Company Ltd.
- Kotak Mahindra Pension Fund Ltd.
- LIC Pension Fund Ltd.
- Reliance Capital Pension Fund Ltd.
- SBI Pension Funds Pvt Ltd.
- UTI Retirement Solutions Ltd.
Tier I : This is the compulsory contribution from each individual and also the matching grant from employer ( In case of Bank Employees the contribution towards NPS is 10% of Basic and DA and an equal contribution from Management )
Tier II : Its purely voluntary in nature. You have option to invest over and above compulsory contribution.
Further, Each Tier has 3 different Assets to be invested in
E: EQUITY ( Max 50% of available funds )
C: Corporate Bonds
G: Government Securities
And each Subscriber can choose Fund Manager and also the asset class ( Active Choice )to be invested in. But fortunately or unfortunately this option is not yet provided to members. Only Auto Choice is provided.
Auto Choice for different employees is as follows
For Central Government Employees: Funds collected from subscribers are allotted to three Public Sector Pension Fund Managers i.e SBI, UTI and LIC.
For Corporate Employees ( Including Public Sector Bank’s) : Government has given a choice to the banks to decide investment choice either at subscriber Level or at the Bank level on behalf of all the employees. Even the allocating the funds amongst the three asset classes can be decided by the bank.
Now here is the catch, nobody so far bothered to know where the funds are invested, which fund house is managing them, in which asset class they are invested in and which fund house has given the best return.
We should admit that we as bankers are poor in managing our own personal finance, but this NPS invest has to be taken seriously.
Let’s analyze the maturity value at different ROI. Assuming that contribution of Rs.3000/- ( And another 3000/- contribution by the bank ) is made towards NPS the following are the different scenarios
Amount In Lacs
Remaining years of Service ( Contribution to be Made )
As you can see a 2% increase on investment is more than one Crore for a 25-year old employee. Further, the longer you work in the bank the more fund you can accumulate. This is called the power of compounding.
The detailed performance of each fund house is as follows
Summary of performance Since Inception
Total Assets managed by each fund is as follows
Majority of the funds are managed by SBI Pension Fund and Majority of the contributions are parked in Government Securities. We can simply assume that safety is the first priority.
Just analyze your NPS statement and compare your returns with other fund managers. If your fund is under performing put pressure on your bank to change the fund manager or demand for Active Choice instead of Auto Choice.
Unions and associations have to play a Major Role in this. Educate the Young Lot. Just one bad decision can make their fund shrink from 3.77 cr to 1.36 cr.
NPS is the one of your prime investment take care of it. Spend some time to discuss and take wise decisions.