The national pension system (NPS) is a contribution retirement plan to encourage more individuals to attain financial freedom during their senior years. When the scheme was first launched, it was available only for Indian residents. In November 2015, investments in NPS were extended to non-resident Indians (NRI) to boost the corpus of this retirement scheme. This modification is expected to increase the inflow of dollars into the country.

The Reserve Bank of India (RBI) notified that NRIs could subscribe to the Pension Fund Regulatory and Development Authority (PFRDA)-administered NPS. The contributions must be made through regular banking channels and eligibility is determined by the regulations governing the national pension system of India.
 Eligibility for NRI investments

• NRIs aged between 18 and 60 years are eligible to open an NPS account
• Only individual NRI accounts can be opened
• Currently, the regulatory authority does not provide Power of Attorney (POA) facility to NRI investors
• OCI and PIO card holders are not eligible

 Contributing to the NPS

• All investments in this pension scheme in India are to be made through normal banking channels
• The subscription must be completed either through inward remittance or from funds held in Non-Resident External (NRE), Non-Resident Ordinary Rupee (NRO), or Foreign Currency Non-Resident Account (FCNR)
• There are no restrictions on repatriation of the accumulated corpus in the NPS account
• The minimum annual subscription amount is INR 6,000 with an allocation to equities restricted to 50% of the contributed amount
• Investments in the national pension system in India can be withdrawn at maturity when the investors reach age 60
• At the time of maturity, at least 40% of the accumulated corpus must be invested in an annuity scheme

Benefits to NRIs

• The returns that can be earned through this pension scheme in India are higher when compared to the returns available in developed markets
• The costs associated with investments in the NPS are low, which makes it a cost-effective scheme to build a higher retirement corpus
• NPS is also a tax-saving investment plan; the government has allowed an additional tax deduction of INR 50,000 per year under section 80 C of the Income Tax Act
• The tax exemptions offered by this tax-saving investment scheme is beneficial for NRIs earning investment income in India
• It provides stability of corpus because the contributions made to the NPS are invested in debt and equity classes, which makes it a recommended option for including in your investment portfolio

 Asset allocation of contributions made to NPS

NRIs have the option to select the Pension Fund Manager and choose their investment choice under the All Citizen Model. Investments may be allocated in the following asset classes:

• Equity (E)
• Government Securities (G)
• Corporate Bonds (C)

 Two approaches to investing the contributions

• Active choice – The investors decide the asset classes in which their contributions will be invested; however investment in class E is restricted to a maximum of 50% of the total contribution amount
• Auto choice – This is the default option under the NPS, through which the investments are based on the age profile of the subscribers. As an investor grows older, the investment in equities and corporate bonds reduces and in government securities increases to provide stability of returns

Planning for your retirement years is crucial to ensure you are not financially dependent on your family members. Using a pension plan calculator in India to determine the corpus required to sustain your current lifestyle can help you take the first step towards retirement planning.

Sponsored post by Kotak Bank