How New Pension Scheme funds are invested?

Pension reform in the form of New Pension system from on 1st  January 2004 is a major initiative undertaken by the Government of India to provide income security after retirement.

This is an initiative of Government to create a corpus for uninterrupted payment of pension to Government Employees and other subscribers  in  proportion to contributions made by them throughout their life.  This is to ensure that payment of pension to Government Employees and other participants should not cause a major financial burden to the Government in the future.

The other positive aspect of NPS is Government has formulated various blends of investment options  according to risk taking capabilities of an employee .  For example funds of Government employees are invested mainly in government securities  and bonds .  The maximum exposure in Equities  in respect of Government employees has been fixed at 15% of total pension fund.  In the case of other citizens proportion of investments in Government securities, equities and money market is based on the age of the subscriber, if he has chosen to  opt for auto choice.

We hope the following comparison chart of difference in scheme features applicable would provide a comprehensive knowledge for all in NPS.

How New Pension Scheme funds are invested?


Pension Fund Managers

For Government Employees:

Central Government employees can opt for any of three Pension fund managers as on date for managing their individual pension fund under New pension system. They are SBI, UTI, and LIC.

For All Citizens:

Other NPS Subscribers can opt for any one of Seven Pension Fund Managers to manage their individual pension fund. They are SBI,LIC,UTI, IDFC, KOTAK, ICICI and RELIANCE.

NPS Investment Options

For Government Employees:

 Presently there are two schemes with investment being broadly in Debt and Equity. However during the years 2008-09 and 2009-10 only Scheme I was operational.

Type of Investment Percentage in Pension fund
Govt.Securities  upto  55%
Debt Securities,Corporate Bond/PSU Bonds,etc     upto  40%
Equity including equity-linked schemes of Mutual Funds upto  15%
Money Market Instruments   upto   5%

For All Citizens:

Under the investment guidelines finalized for the NPS, pension fund managers will manage three separate schemes, each investing in a different asset class. The three asset classes are equity, government securities and credit risk-bearing fixed income instruments. Each subscriber has to opt for percentage of contribution in three of the said asset classes.

In case the subscriber does not exercise any choice as regards asset allocation, the contribution will be invested in accordance with the Auto choice option. In this option the investment will be determined by a predefined portfolio.

At the lowest age of entry (18 years) the auto choice will entail investment of 50% of pension wealth in "E" Class, 30% in "C" Class and 20% in "G" Class. These ratios of investment will remain fixed for all contributions until the participant reaches the age of 36.

From age 36 onwards, the weight in "E" and "C" asset class will decrease annually and the weight in "G" class will increase annually till it reaches 10% in "E", 10% in "C" and 80 % in "G" class at age 55as in the Table below :

Age Asset Class E Asset Class C Asset Class G
up to 35 years 50% 30% 20%
36 years 48% 29% 23%
37 years 46% 28% 26%
38 years 44% 27% 29%
39 years 42% 26% 32%
40 years 40% 25% 35%
41 years 38% 24% 38%
42 years 36% 23% 41%
43 years 34% 22% 44%
44 years 32% 21% 47%
45 years 30% 20% 50%
46years 28% 19% 53%
47 years 26% 18% 56%
48 years 24% 17% 59%
49 years 22% 16% 62%
50 years 20% 15% 65%
51 years 18% 14% 68%
52 years 16% 13% 71%
53 years 14% 12% 74%
54 years 12% 11% 77%
55 years 10% 10% 80%
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