National Pension System: By the middle of this month, it will be mandatory for fund managers to give ratings to schemes under NPS To indicate the level of risk involved. There will be six levels of risk – low risk, low to medium risk, medium risk, medium high risk, high risk and very high risk. The new rules will be effective from July 15.
“plans of” National Pension System (NPS) are becoming an important asset for investment for long term savings of individuals and if invested in an informed manner help in building the desired corpus for pension. Investments under different asset classes of schemes of pension funds will involve different levels of risk for the subscribers and therefore, it is desired that adequate disclosure of the risks involved in various schemes of NPS is made available for the awareness of the subscribers. PFRDA has said in a circular.
It added that the risk profile is to be disclosed on the website of the pension fund concerned under the section ‘Portfolio Disclosure’ within 15 days from the end of each quarter at the end of the month. It also said that pension funds will disclose the risk level of the schemes on their website on March 31 every year, along with the number of times the risk level has changed during the year.
“Evaluation of risk profiling will be done on quarterly basis and any change in risk profile will have to be updated on the website of the Pension Fund and the same will be notified to the NPS Trust by the Pension Fund concerned for updating the same on the website of the NPS Trust.” Circular.
What are the schemes under NPS?
Under the National Pension System, there are four asset classes – equity (E), corporate debt (C), government bonds (G) and alternative investments (Scheme A). There are two levels of plans under each category. In NPS, there are many pension fund managers and investment options. The client first selects the fund manager, and then has the option of choosing any one of the investment options.
Tier 1 and Tier 2 under NPS
There are two types of accounts in the National Pension System – Tier 1 and Tier 2. Tier 1 account is primarily meant for retirement savings where a minimum contribution of Rs 500 has to be made at the time of opening the account. It also includes tax benefits under section 80CCD (1B) of the Income Tax Act, 1961.
NPS Tier 2 is an open-access account with a minimum investment of Rs 1,000, where the subscriber is free to withdraw his entire amount at any point of time. No tax benefit is available in this account.
What will be the rating system?
The new rules have outlined six levels of risk – low risk, low to medium risk, medium risk, medium high risk, high risk and very high risk. Based on the features of the plan, pension funds assign risk levels to E-Tier 1, E-Tier 2, C-Tier 1, C-Tier-2, G-Tier-1, G-Tier-2 and Plan A schemes will do. , as per the circular.
By knowing the risk profile of the schemes/asset class, the subscribers will have a better idea of the risk involved in their investments under NPS. He will be able to take an informed decision on allotment For schemes of different asset classes at the time of enrollment in the scheme and subsequent contribution to the schemes.
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