Pros and Cons of the NPS

The National Pension System (NPS) is a voluntary retirement savings scheme in India designed to enable systematic savings. It is an initiative of the Government of India that protects the interest of the subscribers through regulations while offering them higher interest and returns. However, like any financial product, the NPS has its pros and cons, which we will explore to help you make an informed decision.

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NPS Overview

The National Pension System (NPS) is a voluntary, long-term retirement savings scheme designed to enable systematic savings. It is particularly aimed at encouraging working individuals to invest in a pension account at regular intervals during their employment years. After the lock-in period, post-retirement, subscribers are eligible to withdraw a certain percentage of the accumulated corpus. The remaining amount is then disbursed to the account holder as a monthly pension, providing a steady source of income in their retirement years.

When considering the NPS, it is crucial to weigh the pros and cons of the system. Additionally, the selection of a pension fund manager plays a significant role in the potential success of your investment. The performance of NPS fund managers can vary, and therefore, it is recommended that individuals make an informed decision by thoroughly researching and comparing the different options available to them.

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.

People Also Read: Best Pension Plan In India

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. Experienced and Best NPS Fund Managers

    The funds contributed by subscribers are managed by a team of professional, qualified, and experienced NPS fund managers who are among the best in the industry. These fund managers operate under the strict regulatory framework of the Pension Fund Regulatory and Development Authority (PFRDA), ensuring that your investments are in safe and capable hands.

  2. Higher Returns

    Investments in the Tier 2 accounts of the National Pension System (NPS) scheme have the potential to yield higher returns, which can accumulate significantly over time, resulting in a substantial corpus by the time of retirement. Similarly, funds in the Tier 1 account are accumulated for pension purposes. A significant portion of NPS investments is allocated to the equity market, which often results in returns that are considerably higher compared to the Employee Provident Fund (EPF). 

  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

    Salaried Individuals:

    • Tax exemption up to Rs. 50,000 under section 80CCD (1B).

    • This benefit is in addition to the Rs. 1,50,000 limit under section 80C.

    • Can invest up to 10% of basic salary and dearness allowance for tax exemption under section 80CCD (1).

    • This exemption is subject to the Rs. 1,50,000 limit under section 80C.

    Self-Employed Individuals:

    • Tax exemption up to Rs. 50,000 under section 80CCD (1B).

    • This benefit is in addition to the Rs. 1,50,000 limit under section 80C.

    • Can invest up to 20% of gross annual income for tax exemption under section 80CCD (1).

    • This tax exemption is subject to the Rs. 1,50,000 limit 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: Where 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 with the least effort.

  13. Option of Opening Multiple Accounts

    • When subscribing to the NPS, an investor has the option to open:

      • A mandatory pension account (Tier 1).

      • An optional investment account (Tier 2), which can only be opened after having an active Tier 1 account.

    • The selection of a pension fund manager is crucial and should be based on:

      • Past performance.

      • Other relevant criteria.

    • The performance of the NPS fund manager is a significant factor in choosing a plan.

    • The NPS provides multiple investment avenues within a single scheme.

    • There are two methods to open an NPS account:

      • Offline, by visiting a Point of Presence Service Provider (POP-SP), such as 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

    Subscribers have the flexibility to select the best pension fund manager for their National Pension System (NPS) account, and even have the option to change their fund manager if they wish to do so. This feature empowers individuals to make informed decisions and select a manager that aligns with their investment goals and preferences.

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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

    The National Pension System (NPS) has a lock-in period and imposes restrictions on withdrawals from the pension account. Subscribers are not allowed to make any withdrawals before reaching the age of 60. However, after 10 years from the account opening date, the subscriber is permitted to make the first withdrawal. A maximum of three withdrawals are allowed until the subscriber reaches the age of 60. It is important to note that the amount withdrawn cannot exceed the total sum of contributions made by the subscriber to the pension account.

  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 the 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. 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, but we can share the names of all the eleven fund managers.

  • Aditya Birla Sun Life Pension Management

  • Axis Asset Management

  • DSP Investment Managers

  • HDFC Pension Management

  • ICICI Prudential Pension Fund Management

  • Kotak Mahindra Pension Fund

  • LIC Pension Fund

  • Max Life Pensions

  • SBI Pension Fund

  • Tata Pension Funds

  • UTI Retirement Solutions

NPS Fund Manager Performance

  1. NPS Fund Manager Performance: Central Government Scheme

    Best Pension Fund Managers
    SBI Pension Fund UTI Retirement Solutions LIC Pension Fund
    1-year return 9.23% 9.15% 9.42%
    3-year returns 7.40% 7.65% 7.83%
    5-year returns 9.35% 9.32% 9.38%

    Returns as on 23-Oct-2023. 

  2. NPS Fund Manager Performance: State Government Scheme

    Best Pension Fund Managers
    SBI Pension Fund UTI Retirement Solutions LIC Pension Fund 
    1-year 9.13%  9.14% 9.35%
    3-year 7.28%  7.63% 7.73% 
    5-year 9.32%  9.31% 9.32%

    Returns as of 23-Oct-2023.

  3. NPS Fund Manager Performance: Tier-I Government Bonds

    Best Fund Managers Returns (%)
    1-year 3-year 5-year
    Birla Sun Life Pension Scheme 8.33% 5.17% 9.01%
    HDFC Pension Fund 8.18% 4.91% 9.06%
    ICICI Prudential Pension Fund 8.29% 4.90% 8.81%
    Kotak Pension Fund 8.23% 5.06% 9.03%
    LIC Pension Fund 8.32% 5.09% 9.51%
    SBI Pension Fund 8.45% 4.91% 8.88%
    UTI Retirement Solutions 8.55% 4.96% 8.74%

    Returns as of 23-Oct-2023.

  4. NPS Fund Manager Performance: Tier-I Equity Plans

    Best Pension Fund Managers Returns (%)
    1-year 3-year 5-year
    Birla Sun Life Pension Scheme 18.71% 20.83% 13.09%
    HDFC Pension Fund 17.57% 21.85% 13.83%
    ICICI Prudential Pension Fund 18.36% 22.95% 13.68%
    Kotak Pension Fund 18.12% 22.65% 14.13%
    LIC Pension Fund 16.85% 23.22% 13.06%
    SBI Pension Fund 17.07% 21.54% 12.77%
    UTI Retirement Solutions 16.05% 22.18% 13.04%

    Returns as of 23-Oct-2023. 

  5. NPS Fund Manager Performance: Tier-II Equity Plans

    Best Pension Fund Managers Returns (%)
    1-year 3-year 5-year
    Birla Sun Life Pension Scheme 18.78% 21.03% 13.13%
    HDFC Pension Fund 17.70% 21.84% 13.84%
    ICICI Prudential Pension Fund 19.00% 23.15% 13.88%
    Kotak Pension Fund 18.21% 22.49% 13.97%
    LIC Pension Fund 16.28% 23.34% 13.12%
    SBI Pension Fund 17.02% 21.68% 12.82%
    UTI Retirement Solutions 16.15% 22.29% 13.07%

    Returns as of 23-Oct-2023. 

  6. NPS Fund Manager Performance: Tier-II Government Bonds

    Best Pension Fund Managers Returns (%)
    1-year 3-year 5-year
    Birla Sun Life Pension Scheme 8.22% 5.17% 8.94%
    HDFC Pension Fund 8.07% 4.84% 8.86%
    ICICI Prudential Pension Fund 8.34% 5.01% 8.81%
    Kotak Pension Fund 8.06% 5.00% 8.67%%
    LIC Pension Fund 8.33% 5.20% 9.76%
    SBI Pension Fund 8.29% 4.85% 8.69%
    UTI Retirement Solutions 8.55% 4.96% 8.77%

    Returns as of 23-Oct-2023. 

FAQ's

  • Who can join NPS?

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

    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.
  • How can I join NPS?

    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.
  • What is the NPS interest rate?

    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%.
  • How can I check my NPS account balance online??

    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.
  • What is IPIN?

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

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

    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.
  • What will happen if I don't make the minimum contribution?

    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.
  • When can I withdraw money from NPS?

    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.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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