Pros and Cons of the NPS

The NPS, or the National Pension Scheme, is the initiative of the Government of India that protects the interest of the subscribers through regulations while offering them higher interest and returns. NPS of the National Pension Scheme is a defined contribution and voluntary retirement saving scheme. It has been designed to provide systematic savings over a long period of working years of the subscriber. NPS is governed by PFRDA (Pension Fund Regulatory and Development Authority). 

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NPS Overview

NPS encourages individuals (especially working individuals) to invest in a pension account at regular intervals. Post-retirement (after the NPS lock-in period), the subscribers are eligible to withdraw a certain percentage of the accumulated corpus. The remaining amount is given to the account holder as a monthly pension after retirement. Let us look at the pros and cons and some of the best pension fund managers for NPS. The selection of a scheme should be based on NPS fund manager performance.

NPS CRA Login

PFRDA has appointed NSDL e-Governance Infrastructure Limited as Central Recordkeeping Agency (CRA) for NPS - Lite. To log in to the NSDL portal, a person needs to generate an IPIN using PRAN (Permanent Retirement Account Number). This IPIN is generated from the NPS CRA login. Apart from this, one can also get annual transaction statements by email, invest in NPS, view status, etc. To generate IPIN, follow the below steps:

Step 1: Visit the NSDL CRA website

Step 2: Enter all the details

Step 3: Enter a new password and submit

An IPIN is generated, which is used for logging in to the NSDL portal. 

Step 1: Log in to the NSDL eNPS home page and click on "Login with PRAN/IPIN."

Step 2: Now, you will get redirected to the NPS CRA login page, where you can use PRAN and IPIN to sign into your NPS account.

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Is NPS Good or Bad?

All the savings of the investor are pooled in the pension fund of the investor in the NPS scheme. Below are some of the advantages, or the "Pros," of the NPS scheme.

  1. Funds Invested by the Able and the Best NPS Fund Managers

    All the funds deposited by the subscribers are invested by professional, qualified, experienced, and best NPS fund managers, who are regulated by the PFRDA or the Pension Fund Regulatory and Development Authority. 

  2. Higher Returns

    The investments made in the Tier 2 accounts of the NPS scheme get higher returns, which accrue over a long time, to be substantial in size at the retirement age. The funds in the Tier 1 account also accumulate for pension purposes. A high proportion of NPS investments is channeled toward the equity market. The returns on NPS are much higher in comparison to the EPF. Some of the best pension fund managers for NPS take care of your investment.

  3. Low Investments

    The Tier 1 account can be opened with a minor investment of Rs 500, while the Tier 2 accounts can be opened with a minor investment of Rs 1000. The amount can be deposited through a cheque, cash, or demand draft. Subsequently, for Tier 1 accounts, the account holder can make a minimum contribution of Rs. 500 per contribution or a minimum of Rs. 1000 per year. For tier 2 accounts, a minimum amount of Rs. 250 per contribution can be made.

  4. Easy Documentation

    A person can easily enter the scheme through multiple avenues. They can go to the NPS CRA Login page, or for the manual process, they would only need to fill out the NPS form and submit the identity and address proof.

  5. Wide Coverage

    All citizens of India, and also the NRIs, can invest in the scheme. It has a vast age span, which ranges from 18 years to 60 years (as it is a pension scheme). Initially, it was only for the "Government of India" employees, but later anybody, including freelancers, self-employed people, and businessmen, could invest in the scheme.

  6. Regulations that Safeguard the Investments

    All investments in the NPS scheme are secured through regulations; hence, the subscribers enjoy better returns, which are also safeguarded.

  7. Easy Access

    The scheme is easily available, and one can easily subscribe to it by reaching nearby public sector or private sector banks or online through an NPS CRA login.

  8. Portability

    Even if an individual changes their employment, city, or state, the NPS CRA login or PRAN continues to remain the same.

  9. Risk assessment

    Currently, for NPS, a cap of 50% to 75% has been imposed on equity exposure (for government employees, there is a cap of 50%). The equity exposure is reduced gradually every year by 2.5% starting from the year in which the investor turns 50 years of age. This helps stabilize the risk-return exposure of the investor.

  10. Tax benefits

    For salaried individuals, tax exemption up to Rs. 50,000 under section 80CCD (1B) can be claimed. This benefit is added to the limit of Rs. 1,50,000 under section 80C. Also, a salaried investor can invest up to 10% of his basic salary and dearness allowance and claim tax exemption under section 80CCD (1). This exemption is subject to a limit of Rs. 1,50,000 under section 80C. 

    Self-employed individuals can claim tax exemption up to Rs. 50,000 under section 80CCD (1B). This benefit is added to the limit of Rs. 1,50,000 under section 80C. A self-employed individual can invest up to 20% of his gross annual income and claim tax exemption under section 80CCD (1). This tax exemption is subject to a limit of Rs. 1,50,000 under section 80C.

  11. Multiple Funds of NPS

    Based on the individual's financial goals, one can select an asset class and then the best NPS fund manager. Every asset class comes with a particular investment limit. NPS has four asset classes, these include:

    Asset Class A: Investments in assets like Commercial Mortgage-Backed Securities (CMBS), Real Estate Investment Trusts (REITs), and Infrastructure Investment Trusts (InVITs)

    Asset Class C: Investments in corporate bonds 

    Asset Class G: Investments in central and state government bonds or Government Securities

    Asset Class E: Investments in equities or stocks

    The asset allocation in NPS can be done using the Active Choice or Auto Choice option. The account will be operated by the best NPS fund managers.

    Active Choice: Where the subscriber can choose the percentage of funds to be allocated to a particular asset class, such as E, C, and G, but the allocation to equity should not surpass 75%.

    Auto Choice: When the investments are made by the fund manager, who determines the percentages of assets allocated based on the subscriber's age.

    It is always recommended to understand the various NPS fund manager performance and choose the best pension fund manager for NPS investment.

  12. Easy Maintenance of The Account

    When you invest in the NPS, you are allotted your own Permanent Retirement Account Number (PRAN) through the NPS CRA login. The systematic pension investment plan provides for easy investments and helps retired and old age people to make monetary transactions will the least effort.

  13. Option of Opening Multiple Accounts

    An investor can open both, the pension account (Tier 1, which is mandatory) and the investment account (Tier 2, which is optional) when he or she subscribes to the NPS. An individual can choose the best pension fund manager for NPS based on past performance and other criteria. The NPS fund manager's performance is an important criterion for choosing a plan. One can open a Tier 2 account only after he/she has an active Tier 1 account. A single scheme, hence, provides multiple investment avenues.

    There are two ways to open an NPS account:

    • By visiting the POP-SP (point of presence service provider) which could be a bank branch or post office.

    • Online through the NPS CRA login using PAN and bank details.

  14. Withdrawal Exemptions

    There is an NPS lock-in period, however, any amount can be anytime withdrawn out of the investment (Tier 2) account, which makes the scheme even more lucrative.

  15. Option to Change the Fund Manager

    The subscribers even get the option to change and choose the best pension fund manager for NPS if needed.

Disadvantages or Cons of the NPS

The NPS scheme has its own set of cons or disadvantages when we compare it to the other investment/pension options available.

  1. Withdrawal Limits

    Along with the NPS lock-in period, withdrawals from the pension account also have restrictions. NPS restricts all kinds of withdrawals before the subscriber reaches the age of 60 years. The subscriber can make the first withdrawal from NPS after 10 years of opening the account, and a total of 3 withdrawals, till they reach the age of 60 years. The withdrawal cannot be more than the total sum of all the contributions made by the subscriber. 

  2. Taxation at the Time of Withdrawal

    The NPS corpus, which the subscriber can use for buying an annuity or for drawing pensions, is taxable when the schemes mature. 60% of the investment in the NPS is taxed by the Government of India, while 40% escapes taxation. 

  3. Account Opening Restrictions

    A person can maintain a single NPS account through an NPS CRA login in their lifetime. While the PRAN can be easily ported across geography and jobs, 1 single individual will get a single PRAN.

  4. Limited Exposure to Equities

    The investment limit on equities has been confined to 75%. This may be a significant issue for individuals in their 20's-30's. This implies a possible loss of opportunity to get exposure to the equity markets.

  5. Mandatory Annuity

    The withdrawal from Tier 1 account is restricted as it is the primary account for pension savings. At the time of maturity, one can withdraw 60% of the funds, and the remaining are used to buy an annuity. The returns of annuity are not tax exempted.

  6. NPS Lock-in Period

    Since NPS is a retirement product, the NPS lock-in period is till retirement.

  7. Complexity towards Choosing the Best NPS Fund Manager

    Many people are not aware of the financial terms relating to equities, debt, securities, and others. Hence, they fail to choose the best NPS fund manager for their NPS investments. 

Best NPS Fund Managers

One must choose the best NPS fund manager while investing. Earlier, there were a total of seven NPS managers. Recently four more fund managers have been added. Let us look at the best NPS fund managers. It is hard to declare an out-and-out best pension fund manager for NPS, we share the names of all the eleven fund managers.

  1. Aditya Birla Sun Life Pension Management

  2. Axis Asset Management

  3. DSP Investment Managers

  4. HDFC Pension Management

  5. ICICI Prudential Pension Fund Management

  6. Kotak Mahindra Pension Fund

  7. LIC Pension Fund

  8. Max Life Pensions

  9. SBI Pension Fund

  10. Tata Pension Funds

  11. UTI Retirement Solutions

NPS Fund Manager Performance

NPS Fund Manager Performance: Central Government Scheme

Best Pension Fund Managers
SBI Pension Fund UTI Retirement Solutions LIC Pension Fund
1-year return 3.81% 3.53% 3.72%
3-year returns 7.77% 7.87% 7.99
5-year returns 8.18% 8.08% 8.16%

Returns as on 28-Nov-2022. Assets as on 31-Oct-2022

NPS Fund Manager Performance: State Government Scheme

Best Pension Fund Managers
SBI Pension Fund LIC Pension Fund  UTI Retirement Solutions
1-year 3.71%  3.66% 3.52%
3-year 7.69%  7.87%  7.83%
5-year 8.14%  8.06% 8.06%

Returns as on 28-Nov-2022. Assets as on 31-Oct-2022

NPS Fund Manager Performance: Tier-I Equity Plans

Best Fund Managers Returns (%)
1-year 3-year 5-year
Birla Sun Life Pension Scheme 9.94 15.32 11.94
HDFC Pension Fund 9.5 16.29 12.93
ICICI Prudential Pension Fund 8.78 15.8 12.28
Kotak Pension Fund 10.29 16.16 11.78
LIC Pension Fund 11.47 16.29 11.58
SBI Pension Fund 9.68 15.27 11.81
UTI Retirement Solutions 9.91 15.61 11.88

Returns as on 28-Nov-2022. Assets as on 31-Oct-2022

NPS Fund Manager Performance: Tier-I Government Bonds

Best Pension Fund Managers Returns (%)
1-year 3-year 5-year
Birla Sun Life Pension Scheme 2.47 6.44 7.67
HDFC Pension Fund 1.92 6.52 7.82
ICICI Prudential Pension Fund 2.06 6.2 7.56
Kotak Pension Fund 2.07 6.29 7.65
LIC Pension Fund 2.19 6.47 8.35
SBI Pension Fund 1.8 6.15 7.58
UTI Retirement Solutions 2.01 5.93 7.31

Returns as on 28-Nov-2022. Assets as on 31-Oct-2022

NPS Fund Manager Performance: Tier-II Equity Plans

Best Pension Fund Managers Returns (%)
1-year 3-year 5-year
Birla Sun Life Pension Scheme 10.22 15.57 11.93
HDFC Pension Fund 9.62 16.25 12.88
ICICI Prudential Pension Fund 8.96 15.99 12.41
Kotak Pension Fund 10.34 15.88 11.67
LIC Pension Fund 11.51 16.4 11.56
SBI Pension Fund 9.85 15.38 11.91
UTI Retirement Solutions 9.25 15.7 12.2

Returns as on 28-Nov-2022. Assets as on 31-Oct-2022

NPS Fund Manager Performance: Tier-II Government Bonds

Best Pension Fund Managers Returns (%)
1-year 3-year 5-year
Birla Sun Life Pension Scheme 2.48 6.29 7.55
HDFC Pension Fund 1.86 6.15 7.63
ICICI Prudential Pension Fund 2.19 6.26 7.58
Kotak Pension Fund 2.33 6.13 7.35
LIC Pension Fund 2.28 6.3 8.78
SBI Pension Fund 1.67 5.95 7.4
UTI Retirement Solutions 2 5.95 7.37

Returns as on 28-Nov-2022. Assets as on 31-Oct-2022

FAQ's

  • Q: Who can join NPS?

    Ans: Any Indian citizen between 18 and 60 years can join NPS. They must comply with the Know Your Customer (KYC) norms.
  • Q: What is an NPS CRA login?

    Ans: To log in to the NSDL portal, a person needs to generate an IPIN using PRAN (Permanent Retirement Account Number). This IPIN is generated from the NPS CRA login.
  • Q: How can I join NPS?

    Ans: One can open an NPS account with a Point of Presence (POP). Many private and public sector banks and several financial institutions are enrolled as POPs. The authorized branches of a POP called point of presence service providers (POP-SPs), act as the collection points.
  • Q: What is the NPS interest rate?

    Ans: The NPS interest rate depends on the performance of the assets. Thus, the amount of return received upon retirement cannot be determined beforehand. The interest rates vary from 9% to 12%.
  • Q: How can I check my NPS account balance online??

    Ans: You can check your accumulated account balance to date online through an NPS CRA login. To avail of the facility, log in using your id and password along with PRAN.
  • Q: What is IPIN?

    Ans: IPIN is a password used to access your NPS account
  • Q: What is the NPS lock-in period?

    Ans: The NPS lock-in period is till retirement.
  • Q: What are the Tier-I and Tier-II accounts?

    Ans: There are two NPS accounts namely, Tier-I and Tier-II accounts. Tier-I is a mandatory account, and Tier-II is a voluntary account. One cannot withdraw the entire money from the Tier-I account until retirement. There are restrictions on withdrawal even after retirement. On the contrary, the subscriber is free to withdraw the entire money from the Tier-II account.
  • Q: What will happen if I don't make the minimum contribution?

    Ans: If one fails to contribute the minimum amount to the NPS amount, the account will be frozen. To unfreeze the account, visit the POP and pay the minimum required amount along with a penalty of Rs. 100.
  • Q: When can I withdraw money from NPS?

    Ans: NPS being a pension product, NPS lock-in period is until retirement. At the age of 60 years, one must use at least 40% of the corpus to buy an annuity income from a PFRDA-listed insurance company. You have the option to withdraw 60% of the corpus tax-free.
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