The New Pension Scheme is a government initiative that allows subscribers to invest in a scheme where they can hope to build savings for retirement. It features advantages like tax benefits for both individuals and companies, the option to create savings and investment amounts that can be very affordable. Another big advantage of this scheme is that the investments in this scheme are put in the equity and debt markets and even in government securities which gives these investments a good chance at providing considerable returns. It even allows subscribers to choose how they wish to invest, i.e. which type of fund gets how much of the investment, or it can be left to the bank to decide on the split. If it is left to the bank then the investments are made in such a way that fair consideration is given to risk appetites throughout the various stages of life. The main aim of this scheme is to make sure subscribers have a pension to retire which is provided by investments in markets.
Features of the Central Bank of India New Pension Scheme
The scheme that individuals can invest in is called the All Citizens Scheme. Central Bank of India New Pension Scheme is split into two types of investments called Tier I and II. Each of these types have features that are typical to them and they are:
- This account requires a minimum investment of Rs. 500 when the account is opened.
- The minimum contribution that can be made in this scheme is Rs. 500 per transaction.
- A minimum contribution of Rs. 6,000 needs to be made in this account every year.
- Once invested, there are no withdrawals permitted till the subscriber reaches the age of 60 years.
- With this account, a minimum amount of Rs. 1,000 is needed to open the account.
- The minimum amount that can be contributed in a single transaction is Rs. 250.
- Account holders need to maintain an annual balance of at least Rs. 2,000.
- The investors can withdraw the savings at any time and there is no limit on the number of withdrawals. Investors can use NPS Calculator to know how much pension amount will they get
Central Bank of India National Pension System General Features
- Both Tier I and II accounts require at least 1 contribution to be made every year.
- The investments are made under the PRAN (Permanent Retirement Account Number) which is assigned to each and every individual.
- Both the accounts come with nomination facilities.
- Investments made in Tier II accounts can be transferred to a Tier I account but not vice versa.
- Only certain branches of the bank are designated to allow investments in this scheme.
- Investments will be made in funds with asset classes E, C and G.
The rules for exiting this scheme are:
- In case the investor has achieved the age of 60 years then they can take 60% of the savings as a lump sum but the remaining 40% need to be taken as annuity.
- In case of premature closure of the account, 20% of the savings can be taken as a lump sum and the remaining 80% as annuity.
- In case the account holder passes away then the entire amount in the account will be paid to the nominee.
- Tax benefits of the National Pension Scheme
Those who have invested in Central Bank of India New Pension Scheme can claim tax benefits under section 80CCD of the IT Act. The limit of the benefits is Rs. 1.5 lakhs in a year. From the financial year 2016-17 an additional amount of Rs. 50,000 will also be eligible for tax benefits under section 80CCD (1B).
Eligibility Criteria and Documents Required for Central Bank of India New Pension Scheme
To be able to invest in Central Bank of India New Pension Scheme there are certain eligibility criteria that investors need to meet and documents that need to be submitted.
- The investor needs to be between the ages of 18 years and 60 years old.
- Even an NRI is eligible to invest in this scheme.
- The first and most important document is the NPS application form.
- Investors will have to submit KYC documents as requested by the bank.
- Tier II account applications will also require the submission of a cancelled cheque.
How is the money invested?
The returns provided by this scheme are driven completely by investments in mutual funds and to that end investors are presented with 3 different asset classes based on the type of investment and the risk associated with it. The investment made can be split into 3 halves and invested in each of these options.
High risk investments
The investments in this type are made in funds of asset class E. They are basically an equity fund that is meant to provide growth options but come with the highest risk criteria. At no point can the investment in this asset class exceed 50% of the invested amount.
Medium risk investments
The investments in this risk category are made in funds with asset class C. This means that the investments are made in the debt markets and don’t pose too much of a risk to the invested amount.
Low risk investments
Low risk investments are those that are made in asset category G signifying an investment in government securities. This means that the security comes with the backing of the government and have a marginal risk of losses.
The lifecycle investment is an option offered by the bank where the investments are made in all three asset classes but the amount invested changes with the age of the investor. If the investor younger than 35 years of age then 50% will be invested in asset class E, 30% in C and 20% in G. At the age of 40 the amount invested in each class will be changed to 40% in E, 25% in C and 35% in G. When the investor attains the age of 50 years, the investment will change to 20% in E, 15% in C and 65% in G. The last change is made when the investor achieves the age of 55 years when the investment changes to 10% in E, 10% in C and 80% in G. The intention of doing this is to minimize the risk to the investment as the investor grows older and can’t afford to take too much of a risk.
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