Tag: NPS Tier II Account

NPS Tier 2 vs Hybrid Mutual Funds: Where to wager for long-term wealth?

Mr Amit Sinha, Group Head, Social Security and Welfare, Protean eGov Technologies Limited (previously NSDL eGovernance Infrastructure Limited)

Retirement planning is an important side of each particular person’s life, which includes cautious accumulation of enough corpus which can present the person with the mandatory monetary assets that might be required to satisfy post-retirement bills. The most necessary side of planning for retirement is to begin early and put money into avenues that provide inflation-beating returns by Compounding.

National Pension System(NPS) is one such product which caters to at least one’s long run in addition to quick time period wants. Tier-I is a Pension account which caters to long run wants whereas Tier-II is an funding account for the quick time period wants. While Tier- II funding is commonly in contrast with Mutual funds, Tier-II edges over Mutual funds in sure advantages as detailed under, which makes it extra enticing for the Individual investor.

1. The first profit amongst that’s the Low fund administration cost, which can also be known as expense ratio. It is the bottom price Active Management fund obtainable at a graded expense ratio of 6 foundation factors.

2. The transactions are executed by a very digital interface and the respective transaction quantity is credited to the Subscribers account in (T+2) days.

3. The second profit is Liquidity when it comes to emergency fund (i.e No lock-in) that the NPS ‘Tier II’ account presents, coupled with flexibility when it comes to withdrawal with no exit load levied upon withdrawing the funds.

4. The third profit is switching from Tier-II to Tier –I . The quantity will be switched from Tier-II to Tier – I i.e from an Investment account to a Retirement pot in a seamless method.

5. Fourth profit is when it comes to flexibility in selection of Investment choices and a number of Pension fund managers, which is at present not obtainable beneath Mutual Funds.

Considering the short-term funding possibility made obtainable beneath ‘Tier II’, people are allowed to take threat and make investments upto 100% belongings beneath Equity possibility, out of three selections i.e. Equity, Corporate Debt & Government Securities, or alternatively, they might go for a mix of those selections with a higher fairness proportion, much like massive cap ‘Hybrid Funds’.

Accordingly, an investor can take choice based mostly on their Goal, Market data and Investment capability. NPS is an efficient possibility for these taking a look at a good-looking retirement Corpus with increased inside charge of return from each Tier I in addition to Tier II accounts. Whereas, Mutual funds fits these searching for a diversified funding pool over an prolonged time frame.

To summarise, the purposive funding for short-term objectives with fast asset liquidity, is what NPS Tier II account can provide a person. Overall NPS is a product that meets a lot of the requirement for a person who’s taking a look at funding plus development and wealth creation.

Kavitha Krishnan, Senior Analyst – Manager Research, Morningstar India

Mutual funds are pooled funding buildings the place a talented portfolio supervisor manages buyers’ cash. Mutual funds schemes don’t carry a lock in apart from the ELSS schemes. Major benefits in mutual funds embrace the investor’s capability to choose and select the fund classes that they wish to put money into and construct a portfolio based mostly on their funding wants and objectives.

NPS Tier II is voluntary in nature and provides its buyers the choice to decide on their asset allocation and fund managers in the event that they wish to. Having mentioned that this selection will be utilized, conserving in thoughts sure limits. For instance, an investor can go for a most funding of 75% in fairness. The Tier II account permits for limitless investments and redemptions with none exit load topic to an preliminary funding of INR 1000. This can also be a comparatively low-cost possibility compared to mutual funds. Having mentioned that, NPS Tier II can solely be subscribed to by buyers who already maintain a NPS Tier I account. Moreover, there are minimal funding limits within the Tier I account which must be adhered to maintain it lively.

Investors have largely gravitated towards mutual funds owing to the convenience of accessing and managing their portfolios. Moreover, it provides them the aptitude to take a position throughout asset courses according to their funding objectives. While each the merchandise provide related advantages, they’re some variations, and each the merchandise are positioned in another way. Another necessary level to contemplate is that these are merchandise which might be largely appropriate for long-term investing.

Alekh Yadav, Head of Investment Products, Sanctum Wealth

Unlike NPS Tier-1, NPS Tier 2 has no obligatory lock-in interval. Just like a mutual fund, these funds will be withdrawn at any time. Also not like Tier-1, NPS tier-2 has no tax profit. NPS Tier-2 buyers can select a fund supervisor from the obtainable choices in addition to can select varied mixtures of asset courses, simply Tier-1 buyers.

Investors of mutual funds have varied choices at their disposal. They can select from a a lot higher variety of fund managers, additionally varied kinds of funds can be found. For instance, with fairness mutual funds buyers can select a large-cap MF, flexicap MF, midcap MF and so forth. Similarly, many classes of debt mutual funds, hybrid and multi-asset mutual funds are additionally obtainable. Even publicity to worldwide fairness is feasible by way of mutual funds. Hence, buyers that perceive investing and wish to construct a portfolio utilizing all kinds of choices could favor mutual funds.

However, having many choices isn’t at all times a boon. For buyers that wish to preserve it easy, and have restricted data and entry to monetary advisors Tier-2 NPS might be a superb possibility. NPS Tier-2 additionally supplies an auto-choice possibility for asset allocation for buyers that don’t wish to handle asset allocation themselves.

Also, the administration payment on NPS (each Tier-1 and Tier-2) may be very low in comparison with mutual funds. Thus, the selection of mutual funds vs Tier-2 NPS would differ relying on the investor and necessities.

Mr. Abhishek Dev, CEO and Co-Founder, Epsilon Money Mart

When the speak of NPS comes, we routinely perceive we’re referring to retirement planning. And retirement planning must be a fastidiously thought-out technique. It is a central authorities retirement scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It presents twin advantages of tax saving plus pension.

However, NPS Tier 2 account is a voluntary account; thus, solely subscribers holding Tier 1 accounts can open a Tier 2 account with an preliminary contribution of Rs. 1,000. Neither does it have a minimal steadiness requirement, nor does it have any withdrawal restrictions. But crucial characteristic of NPS investments: tax financial savings can also be not current. Thus, it turns into taxable as per the person’s revenue tax slab.

A mutual fund is a pool of cash that’s professionally managed by a fund supervisor. It supplies a diversified portfolio of shares, debt, market measurement, sectors, and industries. They don’t have a lock-in interval and are open-ended, thus they provide increased liquidity and are extra versatile.

We current totally different factors and depart it so that you can resolve, which one is best:

a. Allocation: much like NPS, Mutual funds do even have a mix of asset courses. However mutual funds to alao provide single asset class fund choices to go well with totally different necessities. Thus, you get extra choices to take a position as per your want.

b. Risk: If the danger issue is a crucial criterion for funding, whereas NPS stands out over fairness mutual funds over quick time period on dangers. However, Debt or Hybrid mutual funds will be tapped into with related or decrease threat profile.

c. Taxation: with no taxation advantages in NPS Tier-2 account, NPS investments is on the similar footing. Thus, each willl be taxed equally as per their constituents.

d. ELSS mutual funds: whereas we will debate the brand new tax regime, the outdated regime continues to be current. Thus, ELSS funds provide tax advantages coupled with the benefit of fairness returns. Thus, right here mutual funds stand out.

Therefore NPS could also be in contrast with a Hybrid mutual fund. With no tax incentives in Tier-2 account, and long-term returns someplace round 8-10% in a diversified fund, it will depend on the suitability of the buyers. Aggressive hybrid funds have over the long run given a return between 10-12% prior to now (although previous returns are not any indication of future efficiency). Thus, for brand spanking new buyers, searching for retirement planning, investing in plain fairness funds can do the trick with the appropriate threat profile and funding horizon.

Alekh Yadav, Head of Investment Products, Sanctum Wealth

Unlike NPS Tier-1, NPS Tier 2 has no obligatory lock-in interval. Just like a mutual fund, these funds will be withdrawn at any time. Also not like Tier-1, NPS tier-2 has no tax profit. NPS Tier-2 buyers can select a fund supervisor from the obtainable choices in addition to can select varied mixtures of asset courses, simply Tier-1 buyers.

Investors of mutual funds have varied choices at their disposal. They can select from a a lot higher variety of fund managers, additionally varied kinds of funds can be found. For instance, with fairness mutual funds buyers can select a large-cap MF, flexicap MF, midcap MF and so forth. Similarly, many classes of debt mutual funds, hybrid and multi-asset mutual funds are additionally obtainable. Even publicity to worldwide fairness is feasible by way of mutual funds. Hence, buyers that perceive investing and wish to construct a portfolio utilizing all kinds of choices could favor mutual funds.

However, having many choices isn’t at all times a boon. For buyers that wish to preserve it easy, and have restricted data and entry to monetary advisors Tier-2 NPS might be a superb possibility. NPS Tier-2 additionally supplies an auto-choice possibility for asset allocation for buyers that don’t wish to handle asset allocation themselves.

Also, the administration payment on NPS (each Tier-1 and Tier-2) may be very low in comparison with mutual funds. Thus, the selection of mutual funds vs Tier-2 NPS would differ relying on the investor and necessities.

Disclaimer: The views and proposals made above are these of particular person analysts or broking corporations, and never of Mint. We advise buyers to examine with licensed consultants earlier than taking any funding selections.

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February 26, 2023
How to activate your NPS tier 2 account?

With each passing yr, the entire world is experiencing an enchancment within the life expectancy of people. Thus, elevated life expectancy offers elevated years of retirement. So each particular person should plan their future nicely to dwell as much as their expectations.

Employees and job holders in India retire across the ages of fifty to 65. So it’s important for early planning, funding, and contribution to safe your second innings of life. While life expectancy is rising, the demand for the federal government pension scheme – NPS, is significantly rising.

Initially, the National Pension System was launched just for authorities staff. But in a while, the plan was revived and opened to all sections of the complete inhabitants. Presently, folks between 18 to 60 years have the privilege to subscribe to and spend money on NPS.

Investing in NPS works as a trusted long-term funding device and a tax-saving retirement fund. The National Pension System affords you to spend money on two varieties of accounts – Tier I and Tier II. While the prior NPS account is obligatory, the latter one acts as an extra or a voluntary account.

What is NPS Tier II Account?

After actively opening an NPS Tier I account, you may be eligible to open a Tier II account. While opening a Tier II account, you should make a minimal funding of Rs. 1000. However, the later contributions to the Tier II account might be something as per your want.

So not like a Tier I NPS account, you needn’t make any particular contribution. Nevertheless, it could be greatest when you make a contribution to the Tier II account within the multiples of Rs. 250. Besides, there might be no prevailing cap on the utmost help to be made.

The NPS Tier II account offers unbelievable withdrawal flexibility the place there are zero exit load fees connected. However, the investments made in the direction of the Tier II account will not be exempted from tax.

The National Pension Scheme affords 4 asset courses to select from whereas investing in your corpus. Government securities, fairness devices, company bonds, and various funding funds.

Steps to Open a Tier II NPS Account

You can open a Tier II NPS account each on-line and offline. However, we are going to give you a listed information on easy methods to open an NPS Tier II account on-line:

1. Firstly, you should go to the web site of KFintech – https://nps.kfintech.com/

2. Scroll to the choice “Quick hyperlinks.”

3. Click on the option “Tier II Activation.”

4. Next, fill within the required fields with the required particulars.

5. Click on “Verify PRAN”, after which you will receive an OTP in your registered mobile number.

6. After punching in the OTP, fill in your bank details and click on the option “Validate Aadhaar.”

7. Once you obtain your acknowledgement quantity, click on OK to proceed.

8. You should choose your required funding possibility and a pension fund supervisor.

9. By clicking on the “Save and Proceed” possibility, you may be redirected to the subsequent web page.

10. Next, you’ll have to replace your nominee particulars.

11. After this, you’ll have to add scanned copies of all of the required paperwork.

12. Once the paperwork are efficiently uploaded, you should proceed to make the cost.

13. After finishing the cost of Rs. 1000, you’ll efficiently open an NPS Tier II account.

14. Finally, it’s important to signal your software through the use of your Aadhaar quantity. And then, you’re free to make use of your NPS Tier II account.

Why it is best to open an NPS Tier II account?

Opening an NPS Tier II account would require no further upkeep fees. In different phrases, you’ll be able to simply save your earnings and withdraw them every time wanted. Open an NPS Tier II account in the present day itself, whereas there are zero minimal steadiness necessities.

Author: Sreekanth Nadella, MD and CEO, KFintech

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November 25, 2022
How your NPS Tier II account withdrawals are taxed

National Pension System (NPS) has two kind of accounts: Tier I and Tier II. Tier I account is the principle account and is necessary whereas opening of Tier II account is non-compulsory. Tier II account is sort of a saving checking account the place you may deposit and withdraws cash as and whenever you need. One can switch cash anytime from Tier II account to Tier I account and never vice versa. All subscribers are eligible for tax advantages for contributions made to Tier I account however tax advantages for Tier II account contributions can be found solely to central authorities workers with three years lock-in interval. Since there are not any particular provisions for taxation of withdrawals from Tier II account beneath the regulation, I assumed I’ll attempt to clarify how such withdrawals must be taxed logically?

Are the withdrawals from Tier II account taxable?

As per Section 10 (12A) of Income Tax Act, 60% of the quantity withdrawn on closure or on the time of opting out from the account referred to in Section 80 CCD are tax-free within the arms of the subscriber. Likewise, on the time of partial withdrawals 25% of subscriber’s contribution, from the account referred to in Section 80 CCD comes tax-free as per Section 10 (12B). Section 80 CCD implied refers solely to Tier I account as a result of deduction beneath this part is on the market just for contribution to Tier I account and never for contributions made to Tier II account for which deduction is on the market beneath Section 80C(2)(xxv).

There is not any particular and direct provision for taxation of withdrawal from Tier II account beneath the Income Tax Act. If tax regulation doesn’t have any particular provisions for taxation of an merchandise, it doesn’t by default turns into tax-free or taxable. In such a state of affairs one has to use the logic and take assist of different provisions of the identical regulation. The full worth of the cash withdrawn from Tier II account can’t be taxed because the regulation makers wouldn’t have contemplated taxing one thing on the time of withdrawal if no tax profit has ever been claimed when the cash was deposited. But this doesn’t imply that the complete quantity withdrawn would come tax free. The withdrawals from Tier II account are like common withdrawals out of your saving checking account, which aren’t taxed besides to the extent of curiosity earned.

For arriving on the logical guidelines for taxation of Tier II account withdrawals I take assist from provisions of Section 80CCC. Section 80CCC (1) offers for deduction of premium paid to purchase an annuity. Section 80 CCC (2) offers for taxing of give up worth of such coverage which restricts the taxability to the extent to which the tax advantages beneath Section 80 CCC(1) have been claimed by the person and never past that besides the accretion to the funding. The identical logic must be utilized right here.

How the withdrawals ought to logically be taxed

Due to the explanations defined above I’m of the sturdy opinion that entire of the cash withdrawn from Tier II account can’t be taxed by any stretch of creativeness. What can and may logically be taxed is the appreciation, if any within the worth of investments as comprised within the withdrawals.

Since the funding made in Tier II account doesn’t carry any fastened fee of return like fastened deposits or bonds or debenture, the appreciation within the worth of investments can’t be taxed beneath the pinnacle “Income from different sources”. As a subscriber is allotted items for his investments in numerous classes of funds like of fairness, company bonds and authorities securities at their Net Asset Value (NAV) on the time of funding, it’s logical to deal with contribution to tier II account as investments and deal with any income thereon as capital positive aspects.

Since funding in NPS can neither be referred to as listed fairness shares nor might be handled as items of fairness mutual funds, it shall turn out to be long run provided that the items are bought after 36 months. Since Securities Transactions Tax (STT) shouldn’t be paid on the time of redemption, the identical can’t be taxed as fairness oriented schemes beneath Section 112A even in respect of the fairness element. It shall be taxed at flat of 20% after indexation if held for greater than 36 months. If the items are redeemed inside 36 months, the income on redemption is to be handled as brief time period capital positive aspects and to be included in your common earnings which can get taxed on the slab fee relevant to your whole earnings.

The distinction between NAV of buy and redemption must be multiplied by the variety of the items used for redemption to reach on the revenue on realised on redemption of particular transaction.

Please be aware that no matter I’ve talked about shouldn’t be the precise authorized place in absence of particular and direct provision within the Income Tax Act however is solely my opinion arrived at with the assistance of widespread sense and logic. In view of the confusion surrounding tax on withdrawal for Tier II account, it’s the obligation of the federal government to make the authorized place clear as early as doable. This will assist many individuals to take the choice to avail the advantage of low price funding avenue of Tier II account.

Balwant Jain is a tax and funding knowledgeable and might be reached at [email protected]

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July 11, 2021
These NPS schemes ship over 20% return in final six months

The National Pension System (NPS) Scheme has delivered 21.78 per cent within the final six months. This might change into potential after the stellar efficiency by its distinguished schemes like LIC Pension Fund, UTI Retirement Solution Fund, ICICI Pension Fund, Kotak Pension Fund and HDFC Pension Fund. According to the NPS Trust knowledge accessible at its official web site — npstrust.org.in, these NPS schemes have delivered greater than 20 per cent returns within the final six month.

LIC Pension Fund

As per the return chart of particular person NPS schemes as on thirty first May 2021, LIC Pension Fund has delivered 23.03 per cent in Scheme E Tier-1 whereas in Scheme E Tier-2, the NPS scheme has delivered sturdy 22.82 per cent return within the final six months.

HDFC Pension Fund

In the final six months, HDFC Pension Fund has given 21.35 per cent return in Scheme E Tier-1 and in Scheme E Tier-2, it delivered 21.23 per cent.

UTI Retirement Solution Fund

The UTI Retirement Solution Fund underneath the NPS Scheme has delivered 21.97 per cent in Scheme E Tier-1 whereas in Scheme E Tier-2, the UTI scheme has yielded 23.07 per cent.

ICICI Pension Fund

In the final six months until May 2021, ICICI Pension Fund has delivered sturdy 21.44 per cent in Scheme E Tier-1 whereas in Scheme E Tier-23, the NPS Scheme has given 21.34 per cent.

Kotak Pension Fund

One of the distinguished NPS schemes, Kotak Pension Fund yielded 20.79 per cent in Scheme E Tier-1 whereas within the Scheme E Tier-2, it delivered 20.50 per cent within the final six months.

SBI Pension Fund missed the elite membership by a whisker because it yielded 19.78 per cent in Scheme E Tier-1 whereas its return in Scheme E Tier-2 is 21.75 per cent within the final six months.

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June 17, 2021