The National Pension System (NPS) is fetching near double digit returns, which is at least a percentage point higher than what Employee’s Provident Fund (EPF) or Public Provident Fund (PPF) offer.
NPS is a voluntary long term saving scheme for private sector but mandatory for those who joined the government from 2004.
In case of the private sector, the top performance was on offer for those who had a significant exposure to corporate bonds with all five fund managers –UTI, ICICI, Reliance, SBI and Kotak – offering between 13.4% and 15% over the last one year. Even since inception, the returns have been in the 8.89-11.94% range.
Corporate bonds are followed by government securities, where one-year return has been over 13.5% for all fund managers.
For equity, where maximum exposure of shares is capped at 50%, returns over the last one year have ranged between 8.45% and 11.56%.
The Employee’s Provident Fund Organization (EPFO) has fixed the interest rate for 2012-13 at 8.5%. While government has announced that PPF would fetch 8.7% this fiscal. UTI’s Retirement Plan, a mutual fund scheme that has been around since 1994, has offered returns of 10.5% since its launch, while one-year return is 8.62%.
The flip side is that unlike PPF or EPF, the retirement corpus is subject to tax, although the government has promised to amend the law. But if you choose to use the entire amount to buy annuity, you may avoid paying tax.
Individuals who are not part of the government set up, can invest anything upwards of Rs 6,000 a year under NPS and can withdraw 40% of the amount when they turn 60. The balance 60% has to be used to buy an annuity or a pension plan from an insurance company that will earn you a monthly income for the rest of your life.
When it comes to private sector, the scheme was opened in 2009 but has been slow to take off as fund managers have not pushed it too given the low commission earned by them. As a result, a bulk of the fund, which added up to nearly Rs 29,000 crores at the end of March 2013, came from central and state government employees and NPS Lite which is meant for low income groups.
Over the last one year, central government employees earned over 12% and at least 9.67% since inception, depending on the fund manager.
For state government employees, one-year returns range between 12.8% and 13.3%.
Unlike the private sector, for government who join from 2004, 10% contribution to pension fund is mandatory with their employer providing a matching contributio
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