If you want to keep your staff handsome until retirement, you can opt for the National Pension Scheme (NPS). This not only ensures that you give back the corpus at the time of retirement but helps in wealth creation by investing in equity.
Under NPS, subscribers can invest in two forms of accounts: Tier I and Tier II. While Tier I is a lasting account, Tier II is an optional account.
What is a Tier I account?
Tier I is a lasting retirement account in which regular contributions made by the subscriber and his or her employer in accordance with the plan/fund manager are saved and invested. The maximum share in equity is 75%.
The minimum deposit needed to open a Tier I account is ₹500, and the minimum for a year is ₹1000.
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What is a Tier II account?
Tier II is a voluntary/optional withdrawal account that is only allowed if you have an busy Tier I account. Withdrawals from this account are allowed whenever the need arises. The maximum allocation to equity in a Tier 2 account is 100 percent.
The minimum contribution to open level II is ₹250 and there is no restriction on the minimum annual contribution. Importantly, you can switch to level I at any time.
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What equity capital should you choose?
There are four asset classes: equities, corporate debt, government bonds and alternative mutual funds, which include instruments such as CMBS, MBS, REITs, AIFs, InVits, etc.
Corporate debt and government bonds provide investors with steady income, while equity creates wealth. However, this does not mean that investors can or should invest their entire contribution in equity capital.
Therefore, certain thresholds are introduced in these categories. For example, for Tier I the maximum equity allocation is 75% and for Tier II it is 100% equity.
Additionally, the contribution to alternative investment funds cannot exceed more than 5%.
Investment choices
In addition, investors can choose between busy and automatic selection. For busy selection, the maximum equity allocation is 75 percent.
On the other hand, the capital allocation for an busy choice ranges from 25 to 75 percent, depending on the option chosen.
In the case of an aggressive lifecycle fund, the maximum capital allocation is 75 percent, in the case of a moderate lifecycle fund, it is reduced to 50 percent, and in the case of a conservative lifecycle fund, the capital allocation is 25 percent.
Posted: Jun 1, 2024 14:46 EST
